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EXHIBIT 2.16
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
PENTASTAR COMMUNICATIONS, INC.,
PENTASTAR ACQUISITION CORP. VII,
LYNX COMMUNICATIONS, INC.
AND THE
SHAREHOLDERS
OF
LYNX COMMUNICATIONS, INC.
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TABLE OF CONTENTS
Page
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1. Definitions..............................................................1
2. Merger...................................................................1
2.1. Basic Transaction...............................................1
2.2. The Closing....................................................12
2.3. Deliveries at the Closing......................................12
3. Representations and Warranties..........................................12
3.1. Representations and Warranties of the Shareholders.............12
3.2. Representations and Warranties of PentaStar....................25
3.3. Survival of Representations....................................27
3.4. Representations as to Knowledge................................27
4. Pre-Closing Covenants...................................................27
4.1. General........................................................27
4.2. Operation and Preservation of Business.........................27
4.3. Full Access....................................................27
4.4. Notice of Developments.........................................28
4.5. Exclusivity....................................................28
4.6. Announcements; Securities Law Restrictions.....................28
4.7. Closing Date Liabilities and Excluded Assets. ................28
4.8. Conveyance of Shareholder Property.............................28
4.9. Conveyance of Capital Lease Property...........................29
5. Post-Closing Covenants..................................................29
5.1. Further Assurances.............................................29
5.2. Transition.....................................................29
5.3. Cooperation....................................................29
5.4. Confidentiality................................................29
5.5. Post-Closing Announcements.....................................29
5.6. Financial Statements...........................................30
5.7. Satisfaction of Liabilities....................................30
5.8. Repurchase of Unpaid Receivables...............................30
5.9. Termination of Obligations.....................................31
5.10. Transfer Restrictions..........................................31
5.11. Tax Returns....................................................32
5.12. Sales Commissions..............................................32
5.13. Certain Compensation...........................................32
6. Conditions to Closing...................................................32
6.1. Conditions to Obligation of PentaStar..........................32
6.2. Conditions to Obligation of the Shareholders...................34
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7. Remedies for Breaches of This Agreement.................................35
7.1. Indemnification Provisions for Benefit of PentaStar............35
7.2. Indemnification Provisions for Benefit of the Shareholders.....37
7.3. Matters Involving Third Parties................................37
7.4. Right of Offset................................................38
7.5. Other Remedies.................................................38
8. Termination.............................................................38
8.1. Termination of Agreement.......................................38
8.2. Effect of Termination..........................................39
8.3. Confidentiality................................................39
9. Miscellaneous...........................................................39
9.1. No Third-Party Beneficiaries...................................39
9.2. Entire Agreement...............................................39
9.3. Succession and Assignment......................................39
9.4. Counterparts...................................................40
9.5. Headings.......................................................40
9.6. Notices........................................................40
9.7. Governing Law..................................................40
9.8. Amendments and Waivers.........................................41
9.9. Severability...................................................41
9.10. Expenses.......................................................41
9.11. Arbitration....................................................41
9.12. Construction...................................................42
9.13. Incorporation of Exhibits......................................42
9.14. Shareholders' Agent............................................42
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EXHIBITS
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Exhibit 1.1(a) Exhibit 3.1(h)(i)
Exhibit 1.1(b)(i) Exhibit 3.1(h)(ii)
Exhibit 1.1(b)(ii) Exhibit 3.1(i)(i)
Exhibit 1.1(c) Exhibit 3.1(i)(ii)
Exhibit 1.1(d) Exhibit 3.1(k)
Exhibit 1.1(e) Exhibit 3.1(l)(i)
Exhibit 1.1(f) Exhibit 3.1(l)(ii)
Exhibit 1.1(g) Exhibit 3.1(l)(iii)
Exhibit 1.1(h) Exhibit 3.1(m)(i)
Exhibit 2.1(k)(iii) Exhibit 3.1(m)(ii)
Exhibit 3.1(a)(i) Exhibit 3.1(m)(iii)
Exhibit 3.1(a)(ii) Exhibit 3.1(n)(ii)
Exhibit 3.1(b)(i) Exhibit 3.1(o)(i)
Exhibit 3.1(b)(ii) Exhibit 3.1(o)(ii)
Exhibit 3.1(c) Exhibit 3.1(s)
Exhibit 3.1(d)(i)(A) Exhibit 3.1(t)
Exhibit 3.1(d)(i)(B) Exhibit 3.1(u)(ii)
Exhibit 3.1(e)(i) Exhibit 3.1(u)(xi)
Exhibit 3.1(e)(ii)(I) Exhibit 3.2(b)(i)
Exhibit 3.1(e)(iii) Exhibit 4.9
Exhibit 3.1(f)(iii) Exhibit 5.11
Exhibit 3.1(f)(v) Exhibit 6.1(h)
Exhibit 3.1(f)(vi) Exhibit 6.2(e)
Exhibit 3.1(g)(i)
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This Amended and Restated Agreement and Plan of Merger is entered into
effective as of November 14, 2000, to be effective as provided herein, among
PentaStar Communications, Inc., a Delaware corporation ("PentaStar"), PentaStar
Acquisition Corp. VII, a Delaware corporation (the "Acquiror"), Lynx
Communications, Inc. (d/b/a Linear Communications), a Georgia corporation (the
"Company"), and P. ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(individually, a "Shareholder" and collectively, the "Shareholders").
Recitals
A. The Shareholders own all of the issued and outstanding capital stock
of the Company.
B. The Acquiror is a newly formed, wholly-owned subsidiary of
PentaStar. The Acquiror desires to acquire all of the business operations of the
Company through a statutory merger of the Company with and into the Acquiror,
with the Acquiror as the surviving entity (the "Transaction").
C. The Boards of Directors of each of PentaStar, the Acquiror and the
Company has determined that the Transaction is in the best interests of their
respective corporations and shareholders.
D. It is intended that the Transaction qualify as a reorganization
under the provisions of Section 368(a)(1)(A) pursuant to Section 368(a)(2)(D) of
the Code.
E. PentaStar, the Acquiror and the Shareholders desire to make certain
representations, warranties and agreements in connection with the Transaction
and also desire to set forth various conditions precedent thereto.
Agreement
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties and covenants set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged,
the parties agree as follows:
1. Definitions. The terms defined in Exhibit 1.1(a) shall have the meanings
designated therein.
2. Merger.
2.1. Basic Transaction. Subject to the terms and conditions of this
Agreement and the corporation laws of the States of Delaware and Georgia, at the
Closing, but effective for accounting purposes as of 12:01 a.m. Georgia time on
October 1, 2000 (the "Effective Date"), the Company shall be merged with and
into the Acquiror (the "Merger") and the separate existence of the Company shall
cease and the Acquiror shall continue as the surviving corporation in the Merger
(the "Surviving Corporation"). The Merger shall have all the effects provided by
applicable Legal Requirement, including Sections 251 and 252 of the Delaware
General Corporation Law and Section 14-2-1105 of the Georgia Business
Corporation Code. The terms of the Merger shall be as follows:
(a) General. At the Closing, the Shareholders shall receive the
consideration described in Section 2.1(k) in respect of the Company Shares, and
the Company Shares shall be canceled and shall cease to represent any interest
in the Company or the Surviving Corporation. As of the Closing Date, the
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stock transfer books of the Company shall be closed and no transfer or issuance
of shares of capital stock of the Company shall be permitted.
(b) Certificate of Incorporation. At the Closing Date, the Certificate of
Incorporation of the Acquiror, as in effect immediately prior to the Closing
Date, shall continue to be the Certificate of Incorporation of the Surviving
Corporation, and the name of the Surviving Corporation shall remain "PentaStar
Acquisition Corp. VII." Such Certificate of Incorporation may thereafter be
amended as provided therein and by the Delaware General Corporation Law.
(c) Bylaws. At the Closing Date, the Bylaws of the Acquiror, as in effect
immediately prior to the Closing Date, shall continue to be the Bylaws of the
Surviving Corporation, and such Bylaws may thereafter be amended or repealed in
accordance with their terms and the Certificate of Incorporation of the
Surviving Corporation and as provided by the Delaware General Corporation Law.
(d) Directors. At the Closing Date, the directors of the Acquiror
immediately prior to the Closing Date shall continue to be the directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and the Delaware General
Corporation Law until the earlier of his or her resignation or removal or until
his or her successor is duly elected and qualified, as the case may be.
(e) Officers. At the Closing Date, the officers of the Acquiror immediately
prior to the Closing Date shall continue to be the officers of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation and the Delaware General
Corporation Law until the earlier of his or her resignation or removal or until
his or her successor is duly appointed and qualified, as the case may be.
(f) Properties and Liabilities. At the Closing Date, and after giving
effect to the distribution of the Excluded Assets and the assumption of the
Closing Date Liabilities pursuant to Section 4.7, all the properties, rights,
privileges, powers, and franchises of the Company and the Acquiror shall vest in
the Surviving Corporation, and all debts, liabilities, and duties of the Company
and the Acquiror shall become the debts, liabilities, and duties of the
Surviving Corporation.
(g) Documents. Subject to the terms and conditions in this Agreement, the
parties shall prepare, sign, and acknowledge, in accordance with the Delaware
General Corporation Law and the Georgia Business Corporation Code, a certificate
of merger (the "Delaware Certificate of Merger") and deliver the Delaware
Certificate of Merger to the Secretary of State of the State of Delaware for
filing pursuant to the Delaware General Corporation Law on the Closing Date and
deliver a certificate of merger (the "Georgia Certificate of Merger") to the
Secretary of State of the State of Georgia for filing pursuant to Georgia
Business Corporation Code. The Merger shall be completed upon the filing of the
Delaware Certificate of Merger with the Secretary of State of the State of
Delaware and the Georgia Certificate of Merger with the Secretary of State of
the State of Georgia, but shall be effective for accounting purposes as of the
Effective Date.
(h) Share Conversion. At the Closing Date, by virtue of the Merger and
without any action on the part of the holder of any share of capital stock of
any corporation, each issued and outstanding share of capital stock of the
Company shall be converted into the right to receive a portion of the
consideration payable pursuant to Section 2.1(k) determined by dividing the
aggregate consideration so
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payable by the number of Company Shares outstanding at the Closing Date;
provided, however, that each share of capital stock of the Company which is
owned directly or indirectly by the Company (treasury stock) immediately prior
to the Closing Date, if any, shall be cancelled and retired, and no cash,
PentaStar Shares or other consideration shall be delivered or payable in
exchange therefor. Each share of the capital stock of the Acquiror issued and
outstanding immediately prior to the Closing Date shall remain issued and
outstanding.
(i) No Fractional Shares. No certificates or scrip representing fractional
shares of PentaStar Shares shall be issued pursuant to the Merger. Such
fractional share interests shall not entitle the owner thereof to any rights as
a security holder of the Surviving Corporation. In lieu of any such fractional
shares, the Shareholders shall be entitled to receive an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying the Fair
Market Value of a PentaStar Share issuable pursuant to this Agreement (as set
forth in Section 2.1(k) or, in the case of PentaStar Shares issued as part of
the Earn-Out Amount, as determined pursuant to Section 2.1(n)) by the fractional
interest in such PentaStar Share to which the Shareholder would otherwise be
entitled.
(j) Estimated Closing Date Financial Information.
(i) Estimated Closing Date Balance Sheet. No earlier than ten Business
Days prior to the Closing nor later than three Business Days prior to the
Closing, the Shareholders shall deliver a balance sheet for the Company prepared
as of the Closing Date (the "Estimated Closing Date Balance Sheet"). The
Estimated Closing Date Balance Sheet shall be prepared in accordance with GAAP,
on a basis consistent with the accounting practices of PentaStar. The Estimated
Closing Date Balance Sheet shall set forth, in addition to other items required
by PentaStar's application of GAAP, the amount, as of the Closing Date, of
(A) cash held by the Company in excess of the Interim Cash
Requirement,
(B) the Interim Cash Requirement,
(C) the aggregate amount of accounts receivable, notes receivable
and Residual Payment Rights collected by the Company after September 15, 2000
(whether by collection of cash, offset or otherwise, and whether or not any cash
or other amount received in respect thereof is on hand or has been used by the
Company) as a result of the accelerated collection thereof beyond normal stated
terms or outside the ordinary course of business consistent with past practice
or as a set-off against future payments against accounts receivable, notes
receivable or Residual Payment Rights,
(D) the Retained Liabilities described in clause (b) of the
definition of Retained Liabilities and each item thereof, and
(E) all Closing Date Liabilities and each item thereof.
On or before the Closing Date, the Shareholders shall pay or cause the Company
to pay all Closing Date Liabilities and the Estimated Closing Date Balance Sheet
shall reflect those payments. As a result, the only Liabilities reflected on the
Estimated Closing Date Balance Sheet should be the Retained Liabilities, unless
the Shareholders have failed to pay any Closing Date Liabilities prior to the
Closing.
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(ii) Estimated Interim Period Cash Flow Statement. No earlier than
ten Business Days prior to the Closing nor later than three Business Days prior
to the Closing, the Shareholders shall deliver a projected cash flow statement
for the Acquiror prepared for the Interim Period (the "Estimated Interim Period
Cash Flow Statement"). The Estimated Interim Period Cash Flow Statement shall
set forth the amount, as of the Closing Date, of (A) the estimated amount of
cash collections by the Acquiror during the Interim Period, and each item
thereof, and the specific dates on which payments are due from service
suppliers, (B) the estimated amount of cash disbursements by the Acquiror during
the Interim Period for Liabilities, including payroll, commissions, rent and
accounts payable, and each item thereof, and (C) the difference between (A) over
(B).
(k) Consideration.
(i) Subject to adjustment as provided in Section 2.1(m), the aggregate
consideration (the "Purchase Price") payable to the Shareholders pursuant to the
Merger shall be as follows:
(A) cash in the amount of the sum of
(1) $500,000, plus
(2) the amount of cash set forth on the Estimated Closing Date
Balance Sheet in excess of the Interim Cash Requirement; provided, however, that
such amount cannot exceed $100,000, minus
(3) the aggregate amount of accounts receivable, notes
receivable and Residual Payment Rights collected by the Company after September
15, 2000 (whether by collection of cash, offset or otherwise, and whether or not
any cash or other amount received in respect thereof is on hand or has been used
by the Company) as a result of the accelerated collection thereof beyond normal
stated terms or outside the ordinary course of business consistent with past
practice or as a set-off against future payments against accounts receivable,
notes receivable or Residual Payment Rights, minus
(4) the amount of any Closing Date Liabilities reflected on
the Estimated Closing Date Balance Sheet or the amount of any Closing Date
Liabilities not paid by the Shareholders or the Company prior to the Closing
Date (the net amount described in this clause (A) being referred to as the "Cash
Portion" of the Purchase Price);
(B) a number of shares of PentaStar Common Stock (subject to
Section 2.1(i)) as have an aggregate Fair Market Value as of the Closing Date
equal to $1,500,000 (the "Closing Shares"); and
(C) the earn-out amounts payable pursuant to Section 2.1(n).
The Purchase Price shall be adjusted in accordance with Section 2.1(m), and
shall be payable and issuable to the Shareholders in accordance with the
following percentages:
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Number of Company Percentage of
Shareholder Shares Owned Purchase Price
----------- ----------------- ---------------
P. ▇▇▇▇ ▇▇▇▇▇▇▇ 45 45%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 45 45%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 10 10%
(ii) On the Closing Date PentaStar shall (A) pay to the Shareholders
(in accordance with the percentages set forth above) by wire transfer to an
account or accounts designated by the Shareholder's Agent the Cash Portion of
the Purchase Price, (B) deliver the Closing Shares to the Shareholders and any
payment in lieu of a fractional share pursuant to Section 2.1(i) (other than
those which are the subject of Section 2.1(k)(iii) or (iv)) and (C) deliver the
balance of the Closing Shares pursuant to Sections 2.1(k)(iii) and (iv).
(iii) On the Closing Date, the Shareholders shall deposit a number of
Closing Shares having a Fair Market Value as of the Closing Date equal to
$833,000 (the "EBITA Escrow") with the Escrow Agent pursuant to the Escrow
Agreement to be held under the Escrow Agreement until the EBITA Escrow Release
Date, and PentaStar shall deliver such shares directly to the Escrow Agent. If
the Earn-Out EBITA (as determined pursuant to Section 2.1(n)(ii)) is less than
$500,000, then an amount of (A) Closing Shares from the EBITA Escrow having a
Fair Market Value as of the date such shares are delivered from the EBITA Escrow
(not to exceed $833,000) equal to four times the positive difference between
$500,000 and the Earn-Out EBITA (such difference being the "Earn-Out EBITA
Shortfall") shall be deducted from the EBITA Escrow and returned to PentaStar or
(B) cash equal to the Earn-Out EBITA Shortfall shall be paid, jointly and
severally, by the Shareholders to PentaStar; provided, however, that the
Shareholders shall have the right to elect between clause (A) or (B) at such
time; provided further that PentaStar may require the Shareholders to pay cash
for the Earn-Out EBITA Shortfall under clause (B) above if, in the good faith
opinion of PentaStar and the Shareholders, based on advice of the Denver,
Colorado office of BDO ▇▇▇▇▇▇▇ LLC (which shall be mutually retained by
PentaStar and the Shareholders), the taking of shares from the EBITA Escrow
would cause the Purchase Price, taken as a whole, not to comply with the
continuity of interest test for a tax-free reorganization under Section 368 of
the Code. The parties acknowledge that, with the Transaction currently
structured with $500,000 in cash consideration and $667,000 in stock
consideration prior to taking into account any stock in the EBITA Escrow, the
taking of any or all of the PentaStar Shares from the EBITA Escrow would not
cause non-compliance with the continuity of interest test. The Shareholders
shall have no further Liability if Earn-Out EBITA is less than $500,000 except
for any Liability arising under Section 7 as a result of the breach by the
Shareholders of any representation, warranty or covenant of the Shareholders.
During the time that any PentaStar Shares are held in the EBITA Escrow, the
Shareholders shall have the right to vote such shares and have the economic
benefit of any dividends paid on such shares. Reference is made to Exhibit
2.1(k)(iii). The Escrow Deposit shall be held and disbursed according to this
Agreement and the Escrow Agreement.
(iv) On the Closing Date, P. ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall
designate a percentage (not less than 25% nor more than 50%) of the total
PentaStar Shares which such Shareholders may receive as Purchase Price which
shall be delivered to PentaStar to be held subject to the Principal
Shareholder's Escrow Agreement. If any shares of PentaStar Common Stock become
issuable to the Shareholders in respect of the Earn-Out Amount and such shares
are to be subject to the Principal Shareholder's Escrow Agreement, then such
shares shall also be delivered to PentaStar to be held subject to the Principal
Shareholder's Escrow Agreement. The Principal Shareholder's Escrow Agreement
provides that
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upon the occurrence of certain conditions, the Shareholders may receive a
greater or lesser number of shares of PentaStar Common Stock than the number
deposited with PentaStar pursuant to the Principal Shareholder's Escrow
Agreement.
(v) The parties agree that any adjustment in the number of shares
pursuant to Section 2.1(k)(iii), Section 2.1(k)(iv) and Section 2.1(n) shall be
treated as an adjustment to the Purchase Price. Because (A) the total number of
PentaStar Shares included in the Purchase Price shall not be known until the
Earn-Out Amount, if any, is paid and (B) certain of the Closing Shares shall be
held by the Escrow Agent pursuant to the Escrow Agreement, they shall initially
not be available for delivery to PentaStar as contemplated by the Principal
Shareholder's Escrow Agreement if they are designated by the Shareholders
identified in Section 2.1(k)(iii) to be subject to the Principal Shareholder's
Escrow Agreement. However, as soon as (A) PentaStar Shares, if any, are issued
in respect of the Earn-Out Amount or (B) any Closing Shares are released from
the Escrow Agreement for delivery to such Shareholders, they shall be delivered
to PentaStar until the number of PentaStar Shares so delivered equals the number
of PentaStar Shares which have been designated to be subject to the Principal
Shareholder's Escrow Agreement. In the event that any PentaStar Shares which are
designated to be subject to the Principal Shareholder's Escrow Agreement are
delivered to PentaStar or the Acquiror in satisfaction of the indemnification
obligations of the Shareholders under this Agreement, or pursuant to a deduction
from the EBITA Escrow under Section 2.1(k)(iii) or in satisfaction of any other
obligation to PentaStar or the Acquiror secured by such shares, the number of
shares subject to the Principal Shareholder's Escrow Agreement shall remain the
specified percentage of the remaining PentaStar Shares included in the Purchase
Price.
(l) Closing Date Financial Information.
(i) Closing Date Balance Sheet. Within 60 days after the Closing Date
an unaudited balance sheet for the Company shall be prepared as of the Closing
Date (the "Closing Date Balance Sheet") by PentaStar and delivered by PentaStar
to the Shareholders, with access to review all work papers supporting the
Closing Date Balance Sheet. The Closing Date Balance Sheet shall be prepared in
accordance with GAAP, on a basis consistent with the accounting practices of
PentaStar. The Closing Date Balance Sheet shall set forth, in addition to other
items required by PentaStar's application of GAAP, the amount, as of the Closing
Date, of
(A) cash held by the Company in excess of the Interim Cash
Requirement,
(B) the Interim Cash Requirement,
(C) the aggregate amount of accounts receivable, notes receivable
and Residual Payment Rights collected by the Company after September 15, 2000
(whether by collection of cash, offset or otherwise, and whether or not any cash
or other amount received in respect thereof is on hand or has been used by the
Company) as a result of the accelerated collection thereof beyond normal stated
terms or outside the ordinary course of business consistent with past practice
or as a set-off against future payments against accounts receivable, notes
receivable or Residual Payment Rights,
(D) the Retained Liabilities described in clause (b) of the
definition of Retained Liabilities and each item thereof, and
(E) all Closing Date Liabilities and each item thereof.
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Within 30 days after receipt of the Closing Date Balance Sheet, the Shareholders
shall, in a written notice to PentaStar, either accept the Closing Date Balance
Sheet or object to it by describing in reasonably specific detail any proposed
adjustments to the Closing Date Balance Sheet and the estimated amounts of and
reasons for such proposed adjustments. The failure by the Shareholders to object
to the Closing Date Balance Sheet within such 30-day period shall be deemed to
be an acceptance by the Shareholders of the Closing Date Balance Sheet. If any
adjustments to the Closing Date Balance Sheet are proposed by the Shareholders
within such 30-day period, the dispute shall be resolved as provided in Section
2.1(o).
(ii) Interim Period Cash Flow Statement. Within 60 days after the
Closing Date an unaudited cash flow statement for the Acquiror for the Interim
Period (the "Interim Period Cash Flow Statement") shall be prepared by PentaStar
and delivered by PentaStar to the Shareholders, with access to review all work
papers supporting the Closing Date Balance Sheet. The Interim Period Cash Flow
Statement shall be prepared based upon the actual cash flows of the Acquiror
during the Interim Period and shall set forth (A) the actual amount of cash
collections by the Acquiror during the Interim Period and each item thereof, and
the specific dates on which such collections were received, (B) the amount of
cash disbursements by the Acquiror during the Interim Period for Liabilities,
including payroll, commissions, rent and accounts payable, and each item
thereof, and (C) the difference between (A) over (B). Within 30 days after
receipt of the Interim Period Cash Flow Statement, the Shareholders shall, in a
written notice to PentaStar, either accept the Interim Period Cash Flow
Statement, or object to it by describing in reasonable specific detail any
proposed adjustments to the Interim Period Cash Flow Statement and the estimated
amounts of and reasons for such proposed adjustments. The failure by the
Shareholders to object to the Interim Period Cash Flow Statement within such
30-day period shall be deemed to be an acceptance by the Shareholders of the
Interim Period Cash Flow Statement. If any adjustments to the Interim Period
Cash Flow Statement are proposed by the Shareholders within such 30-day period,
the dispute shall be resolved as provided in Section 2.1(o).
(m) Post-Closing Adjustments to the Purchase Price. Within 10 Business Days
after the later of the acceptance of the Closing Date Balance Sheet and the
Interim Period Cash Flow Statement by the Shareholders or the resolution of any
disputes under Section 2.1(o), as the case may be, the Cash Portion of the
Purchase Price shall be redetermined as provided in Section 2.1(k)(i) based on
the Closing Date Balance Sheet rather than the Estimated Closing Date Balance
Sheet, and based upon the Interim Period Cash Flow Statement rather than the
Estimated Interim Period Cash Flow Statement, and an appropriate adjusting cash
payment shall be made by the Acquiror to the Shareholders or by the Shareholders
to the Surviving Corporation, as the case may be, so that the Cash Portion of
the Purchase Price actually paid equals the Cash Portion of the Purchase Price
determined on the basis of the Closing Date Balance Sheet and the Interim Period
Cash Flow Statement. If the Closing Date Balance Sheet reflects Closing Date
Liabilities that have not previously been paid by the Shareholders, such Closing
Date Liabilities shall be paid at the time the adjusting payment is made under
this Section 2.1(m), either by the Acquiror out of any adjusting payment due
from it hereunder or, if no such payment is due or such payment is less than the
unpaid Closing Date Liabilities, by the Shareholders. If the Acquiror has
previously paid any such Closing Date Liability, it shall be reimbursed for said
payment at the time the adjusting payment is made under this Section 2.1(m),
either by offset against any adjusting payment due hereunder or, if no such
payment is due or such payment is less than the reimbursement amount, by the
Shareholders. Any adjustment in the Purchase Price made under this Section
2.1(m) shall be allocated as an adjustment to the consideration paid for the
Company Shares.
(n) Earn-Out. In addition to the Cash Portion of the Purchase Price and the
Closing Shares payable and issuable at the Closing pursuant to this Section 2.1,
the Shareholders shall be entitled to receive the Earn-Out Amount, the Expansion
Earn-Out Amount and the Net Cash Flow Difference
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determined and payable as provided in this Section 2.1(n).
(i) The parties agree that, during the Earn-Out Period (and any
applicable Expansion Earn-Out Period), (A) the operations previously conducted
by the Company in the Atlanta Region shall be conducted as a separate subsidiary
or division of PentaStar with no other operations except for those mutually
agreed to by PentaStar and the Shareholders, (B) the Acquiror shall account for
its operations in the Atlanta Region in accordance with the accounting practices
of PentaStar, (C) the business of the Acquiror shall be conducted by the
Acquiror and/or PentaStar in the usual and ordinary course of the Company's and
PentaStar's business operations and consistent with the Company's past practices
of conducting the business and consistent with PentaStar's overall business
strategy.
(ii) As soon as reasonably practicable after September 30, 2001 (or
after the end of the applicable Expansion Earn-Out Period) and in any event by
November 20, 2001 (or within 60 days after the end of the applicable Expansion
Earn-Out Period), PentaStar shall cause ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ L.L.P. ("▇▇▇▇▇▇
▇▇▇▇▇▇▇▇") to determine (A) the Earn-Out EBITA (or the applicable Expansion
EBITA) and (B) prepare a written calculation of the Earn-Out Amount
(collectively, the "Earn-Out Financial Statements") (or of the applicable
Expansion Earn-Out Amount (collectively, the "Expansion Earn-Out Financial
Statements")). ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ determination under this Section 2.1(n)(ii)
shall be made in accordance with GAAP, on a basis consistent with the accounting
practices of PentaStar. As it specifically relates to the confirmation of
installation of services, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall, if necessary, use other
resources in addition to BellSouth's internal software system for tracking
installations, including confirming installations with customers, qualified
personnel within BellSouth, the Acquiror's installation log books and any other
resource which might augment the confirmation of installations and be acceptable
to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as being in accordance with GAAP. PentaStar shall promptly
provide a copy of the Earn-Out Financial Statements (or the applicable Expansion
Earn-Out Financial Statements) to the Shareholders. Within 10 days after receipt
of the Earn-Out Financial Statements (or the applicable Expansion Earn-Out
Financial Statements), each of PentaStar and the Shareholders shall, in a
written notice to the other, either accept the Earn-Out Financial Statements (or
the applicable Expansion Earn-Out Financial Statements) or object to them by
describing in reasonably specific detail any proposed adjustments to the
Earn-Out Financial Statements (or the applicable Expansion Earn-Out Financial
Statements) and the estimated amounts of and reasons under PentaStar's
application of GAAP for such proposed adjustments. The failure by PentaStar or
the Shareholders to object to the Earn-Out Financial Statements (or the
applicable Expansion Earn-Out Financial Statements) within such 10-day period
shall be deemed to be an acceptance by PentaStar or the Shareholders, as the
case may be, of the Earn-Out Financial Statements (or the applicable Expansion
Earn-Out Financial Statements). If any adjustments to the Earn-Out Financial
Statements (or the applicable Expansion Earn-Out Financial Statements) are
proposed by PentaStar or the Shareholders within such 10-day period, the dispute
shall be resolved as provided in Section 2.1(o). The fees and expenses of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ for the preparation of the Earn-Out Financial Statements (or the
applicable Expansion Earn-Out Financial Statements) shall be paid by PentaStar.
If the Earn-Out Financial Statements (or the applicable Expansion Earn-Out
Financial Statements) are objected to by PentaStar or the Shareholders, then
PentaStar shall deposit the Uncontested Earn-Out Amount with the Escrow Agent
pursuant to the Escrow Agreement until the Earn-Out Amount (or the applicable
Expansion Earn-Out Amount) is finally determined pursuant to Section 2.1(o), at
which time the Earn-Out Amount (or the applicable Expansion Earn-Out Amount)
(including the Uncontested Earn-Out Amount, as the case may be) shall be
delivered to PentaStar or the Shareholders, as the case may be. Interest income
earned in the Escrow Account on the Uncontested Earn-Out Amount shall be paid to
the party receiving the Uncontested Earn-Out Amount, and if the Uncontested
Earn-Out Amount is delivered to more than one party any interest income shall be
paid proportionately to such parties based on the amount of the
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14
Uncontested Earn-Out Amount received. The fact that the Uncontested Earn-Out
Amount has been deposited with the Escrow Agent or that some component thereof
or of the Earn-Out Financial Statements (or the applicable Expansion Earn-Out
Financial Statements) has not been objected to by PentaStar or the Shareholders
shall not be deemed a waiver by PentaStar or the Shareholders to have BDO
▇▇▇▇▇▇▇ LLC determine the Earn-Out Amount (or the applicable Expansion Earn-Out
Amount) in its totality and each component thereof.
If the Net Cash Flow of the Acquiror for the Earn-Out Period is greater
than the Earn-Out Period EBITA Less Owner Distributions, then the Acquiror shall
pay to the Shareholders an amount (not to exceed $200,000) equal to the
difference (the "Net Cash Flow Difference") between (a) the Net Cash Flow and
(b) the Earn-Out Period EBITA Less Owner Distributions. PentaStar may pay a
portion of the Net Cash Flow Difference in Common Stock (valued at the Fair
Market Value as of June 30, 2001) if, in the good faith opinion of PentaStar and
the Shareholders, based on advice of the Denver, Colorado office of BDO ▇▇▇▇▇▇▇
LLC (which shall be mutually retained by PentaStar and the Shareholders), the
payment of the Net Cash Flow Difference in cash only will cause the Purchase
Price, taken as a whole, not to comply with the continuity of interest test for
a tax-free reorganization under Section 368 of the Code.
(iii) Within five Business Days after the later of the acceptance of
the Earn-Out Financial Statements (or the applicable Expansion Earn-Out
Financial Statements) by PentaStar and the Shareholders or the resolution of any
disputes under Section 2.1(o), as the case may be, PentaStar shall pay the
Earn-Out Amount (or the applicable Expansion Earn-Out Amount), if any, to the
Shareholders (the time of such payment of the Earn-Out Amount (but not any
Expansion Earn-Out Amount) being referred to as the "Second Closing").
The Earn-Out Amount shall be payable as follows:
(A) the first $500,000 of the Earn-Out Amount (or the Uncontested
Earn-Out Amount applicable to the Earn-Out Amount, if applicable), if any is
earned, shall be paid in cash; and
(B) the remainder of the Earn-Out Amount (or of the Uncontested
Earn-Out Amount applicable to the Earn-Out Amount, if applicable), if any is
earned, shall be paid, in PentaStar's sole discretion, in cash or PentaStar
Common Stock, or any combination thereof.
The Expansion Earn-Out Amount (or the Uncontested Earn-Out Amount
applicable to an Expansion Earn-Out Amount) shall be paid, in PentaStar's sole
discretion, in cash, PentaStar Common Stock, or any combination thereof.
Notwithstanding the foregoing, the amount of cash included in the
payment of the Earn-Out Amount (or any Expansion Earn-Out Amount) (or any
Uncontested Earn-Out Amount, if applicable) shall not be such as to cause the
Purchase Price, taken as a whole, not to comply with the continuity of interest
test for a tax-free reorganization under Section 368 of the Code, as determined
in good faith by PentaStar based on advice of counsel, unless PentaStar is
responsible for and pays the increase in Tax Liability to the Shareholders
directly resulting from such non-compliance.
If any portion of the Earn-Out Amount (or the applicable Expansion
Earn-Out Amount) (or the Uncontested Earn-Out Amount, if applicable) is paid in
PentaStar Common Stock, the number of shares of PentaStar Common Stock to be
issued (which shall be rounded down to the nearest
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15
whole share, and PentaStar shall pay the Shareholders cash for any such
fractional share as specified in Section 2.1(i)) shall be determined by dividing
(A) the Earn-Out Amount (or the applicable Expansion Earn-Out Amount) (or the
Uncontested Earn-Out Amount, if applicable) that is being paid in PentaStar
Common Stock by (B) the Fair Market Value of a share of PentaStar Common Stock
as of June 30, 2001 (or, in the case of an Expansion Earn-Out Amount, the June
30 occurring closest to the end of the applicable Expansion Earn-Out Period).
The cash portion of the Earn-Out Amount (or the applicable Expansion Earn-Out
Amount) (or the Uncontested Earn-Out Amount, if applicable) shall be paid by
wire transfer to an account or accounts designated by the Shareholders' Agent.
Certificates representing any shares of PentaStar Common Stock issued in payment
of the Earn-Out Amount (or the applicable Expansion Earn-Out Amount) (or the
Uncontested Earn-Out Amount, if applicable) shall be mailed to each Shareholder
at the Shareholders' Agent's address for notice purposes under this Agreement.
(iv) In the event that PentaStar sells the operations conducted by
the Acquiror (whether separately or as part of a sale of all or substantially
all of the assets or operations of PentaStar, and whether by sale of assets or
stock of PentaStar or the Acquiror, by merger of PentaStar or the Acquiror or
otherwise) prior to the end of the Earn-Out Period (or the applicable Expansion
Earn-out Period), PentaStar shall require the purchaser to continue to account
for such operations separately and agree to assume the obligation of PentaStar
to pay the Earn-Out Amount and the Expansion Earn-Out Amounts as provided in
this Section 2.1(n). In that event, the purchaser may pay the Earn-Out Amount
(or the applicable Expansion Earn-Out Amount), in its sole discretion, in cash,
such purchaser's or any parent's common equity securities based on the fair
market value of such securities on the relevant date as provided in this Section
2.1(n), or any combination thereof.
(v) (A) If a PentaStar Liquidity Event occurs prior to the end of
the Earn-Out Period, then the Shareholders shall have the option, exercisable by
notice to PentaStar within three Business Days of notice from PentaStar to the
Shareholders' Agent (which notice may be given by PentaStar at any time after it
reasonably believes that the PentaStar Liquidity Event will occur even if it has
not then been closed), of annualizing the Earn-Out EBITA for the period from
October 1, 2000 until the PentaStar Liquidity Event for purposes of calculating
the deemed Earn-Out EBITA for the period commencing October 1, 2000 and ending
September 30, 2001.
(B) If the Shareholders do not exercise their option to
annualize the Earn-Out EBITA pursuant to Section 2.1(n)(v)(A), then PentaStar
shall have the option, exercisable by notice to the Shareholders on or before
the date of the PentaStar Liquidity Event of annualizing the Earn-Out EBITA for
the period from October 1, 2000 until the PentaStar Liquidity Event for purposes
of calculating the deemed Earn-Out EBITA for the period commencing October 1,
2000 and ending September 30, 2001. If PentaStar exercises its option pursuant
to this Section 2.1(n)(v)(B), then any amounts payable by PentaStar to the
Shareholders or to the Shareholders by PentaStar, as the case may be, in respect
of the deemed Earn-Out Amount shall come first from the PentaStar Shares in the
EBITA Escrow (at a per share price equal to the Fair Market Value on the day
prior to the date of the PentaStar Liquidity Event), and any additional
consideration shall be paid, in PentaStar's sole discretion, in cash or
PentaStar Common Stock (at a per share price equal to Fair Market Value on the
day prior to the date of the PentaStar Liquidity Event), or any combination
thereof. All amounts payable pursuant to this Section 2.1(n)(v)(B) shall be paid
within ten Business Days after the PentaStar Liquidity Event.
(C) If a PentaStar Liquidity Event occurs prior to the end of
an Expansion Earn-Out Period, then the Shareholders and PentaStar shall have the
rights set forth above in this Section
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16
2.1(n)(v) with respect to all then applicable Expansion Earn-Out Amounts
(substituting the applicable dates); provided, however, that all Expansion
Earn-Out Amounts (and the Earn-Out Amount if the Earn-Out Period has not then
expired) shall be subject to the same option (e.g., if the Shareholders exercise
the option under Section 2.1(v)(A), all earn-outs must be annualized).
(D) If the Shareholders do not exercise their option pursuant
to Section 2.1(n)(v)(A) or (C) and PentaStar does not exercise its option
pursuant to Section 2.1(n)(v)(B) or (C), then the earn-outs shall continue as
set forth in Section 2.1(n).
(vi) Upon agreement of PentaStar and the Shareholders' Agent, the
Acquiror may, during the three- year period following the Closing Date, open
additional geographic offices (which may be in any mutually agreed location in
the United States) for its operations headquartered in Atlanta ("Atlanta-based
Expansion Offices"). Any Atlanta-based Expansion Offices, shall be under ▇▇.
▇▇▇▇▇▇'▇ direct management (so long as ▇▇. ▇▇▇▇▇▇▇ is employed by the Acquiror),
subject to PentaStar's control. All monies for the establishment and operation
of any Atlanta-based Expansion Office shall come solely from the Acquiror's
operations. Budgets (including compensation plans) for the Atlanta-based
Expansion Offices shall be mutually constructed by PentaStar and ▇▇. ▇▇▇▇▇▇▇ (so
long as ▇▇. ▇▇▇▇▇▇▇ is employed by the Acquiror). The Shareholders shall be paid
the Expansion Earn-Out Amount with respect to each Atlanta-based Expansion
Office.
(o) Resolution of Disputes. If any adjustments to the Closing Date
Balance Sheet, the Interim Period Cash Flow Statement, the Earn-Out Financial
Statements or the Expansion Earn-Out Financial Statements are proposed by
PentaStar or the Shareholders pursuant to Section 2.1(l) or 2.1(n), PentaStar
and the Shareholders shall negotiate in good faith to resolve any dispute,
provided that if the dispute is not resolved within 10 days following the
receipt of the proposed adjustments then PentaStar and the Shareholders shall
retain (i) the Denver, Colorado office of BDO ▇▇▇▇▇▇▇ LLC to resolve any dispute
concerning the Closing Date Balance Sheet or the Interim Period Cash Flow
Statement or (ii) the Atlanta, Georgia office of BDO ▇▇▇▇▇▇▇ LLC to resolve any
dispute concerning the Earn-Out Financial Statements or the Expansion Earn-Out
Financial Statements, which resolution shall be final and binding. The fees and
expenses of BDO ▇▇▇▇▇▇▇ LLC shall be paid by the parties in accordance with the
percentage allocation of any changes required to be made as a result of the
dispute, as determined by BDO ▇▇▇▇▇▇▇ LLC. BDO ▇▇▇▇▇▇▇ LLC shall be retained
under a retention letter executed by the parties that specifies that the
determination by said firm of any such disputes shall be resolved in accordance
with this Agreement (including the definitions set forth in this Agreement) by
choosing the position of (i) PentaStar in the case of the Closing Date Balance
Sheet or the Interim Period Cash Flow Statement, (ii) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the
case of the Earn-Out Financial Statements or the Expansion Earn-Out Financial
Statements, or (iii) in either case, the objecting party under Section 2.1(l) or
2.1(n), as the case may be, without change, within 30 days of the expiration of
the applicable 10-day or 30-day period described in Section 2.1(l) or
2.1(n)(ii), as the case may be.
If (i) PentaStar fails to deliver the Closing Date Balance Sheet or
Interim Period Cash Flow Statement within the time periods required by Section
2.1(l), or in the event ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ fails to deliver the Earn-Out Financial
Statements or the Expansion Earn-Out Financial Statements within the time period
required by Section 2.1(n) and (ii) the Shareholders and the Acquiror's
employees managed by P. ▇▇▇▇ ▇▇▇▇▇▇▇ have supplied PentaStar and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
with timely and complete responses to information requests pertaining to the
same, then PentaStar shall pay to the Shareholders $100 for each Business Day
that the Closing Date Balance Sheet, the Interim Period Financial Statements,
the Earn-Out Financial Statements
xii
17
or the Expansion Earn-Out Financial Statements, as the case may be, have not
been delivered to the Shareholders.
2.2. The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place, via facsimile and overnight
delivery, at the offices of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.C. at 9:00 a.m. Denver,
Colorado time on November 9, 2000, or as soon thereafter as the conditions to
closing set forth in Section 6 are satisfied (12:01 a.m. Georgia time on the
date upon which the Closing actually occurs being referred to as the "Closing
Date").
2.3. Deliveries at the Closing. At the Closing, (a) the Shareholders shall
deliver or cause to be delivered to PentaStar the various certificates,
instruments and documents, and take or cause to be taken the actions, referred
to in Section 6.1 and (b) PentaStar shall deliver or cause to be delivered to
the Shareholders the various certificates, instruments and documents, and take
or cause to be taken the actions, referred to in Section 6.2.
30 Representations and Warranties.
3.1. Representations and Warranties of the Shareholders. Each Shareholder
jointly and severally represents and warrants to PentaStar and the Acquiror that
the statements contained in this Section 3.1 are correct and complete as of the
date of this Agreement and shall be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were then substituted for
the date of this Agreement throughout this Section 3.1).
(a) Organization, Good Standing, Etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Georgia, and is not required by applicable Legal Requirement to be qualified or
authorized, to transact business as a foreign corporation in any other state.
The Company has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
copies of the articles of incorporation (certified by the Secretary of State of
Georgia) and the bylaws of the Company, both as amended to date, which have been
delivered to PentaStar by the Shareholders and are attached as Exhibits
3.1(a)(i) and 3.1(a)(ii), respectively, are complete and correct, and the
Company is not in default under or in violation of any provision of its articles
of incorporation or bylaws. The minute books (which contain the records of all
meetings of or actions by the shareholders, the board of directors, and any
committees of the board of directors) and the stock certificate books and the
stock record books of the Company, copies of which have been delivered to
PentaStar by the Shareholders, are true, correct and complete.
(b) Ownership and Capitalization.
(i) The authorized capital stock of the Company consists of 1,500
shares of common stock, $1.00 par value. Each Shareholder owns, beneficially and
of record, free and clear of any Encumbrance or Tax, the number of shares of the
common stock, $1.00 par value, of the Company (the "Company Shares") set forth
opposite such Shareholder's name in Section 2.1(k)(i), and the Company Shares
reflected in Section 2.1(k)(i) constitute all of the issued and outstanding
capital stock of the Company. The Company does not own, directly or indirectly,
any shares of its capital stock. All of the issued and outstanding shares of the
Company's capital stock have been duly authorized and validly issued, and are
fully paid and nonassessable, with no personal Liability attaching to the
ownership thereof. There is no authorized or outstanding stock or security
convertible into or exchangeable for, or any authorized or outstanding option,
xiii
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warrant or other right to subscribe for or to purchase, or convert any
obligation into, any unissued shares of the Company's capital stock or any
treasury stock, and the Company has not agreed to issue any security so
convertible or exchangeable or any such option, warrant or other right. There
are no authorized or outstanding stock appreciation, phantom stock, profit
participation or similar rights with respect to the Company. There are no voting
trusts, voting agreements, proxies or other agreements or understandings with
respect to any capital stock of the Company. Except as set forth on Exhibit
3.1(b)(i), all of which the Shareholders shall cause to be terminated prior to
the Closing, there are no existing rights of first refusal, buy-sell
arrangements, options, warrants, rights, calls, or other commitments or
restrictions of any character relating to any of the Company Shares, except
those restrictions on transfer imposed by the Securities Act and applicable
state securities laws.
(ii) Except as set forth on Exhibit 3.1(b)(ii), the Company has no
Subsidiaries and no capital stock, securities convertible into capital stock, or
any other equity interest in any other corporation, partnership, limited
partnership, limited liability company, association, joint venture or other
Person. Each of the entities listed on Exhibit 3.1(b)(ii) is wholly-owned,
directly or indirectly, by the Company, is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation as
set forth on Exhibit 3.1(b)(ii), and is qualified to do business as a foreign
corporation and is in good standing in the states set forth on Exhibit
3.1(b)(ii), which are the only jurisdictions in which the nature of the business
conducted by it or the properties owned, leased or operated by it make such
qualification necessary. No Person has any right to acquire any interest in any
Subsidiary and there are no authorized or outstanding stock appreciation,
phantom stock, profit participation or similar rights with respect to any
Subsidiary. Each such Subsidiary has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted.
(c) Authority; No Violation. Each Shareholder, and each relative or
affiliate of the Company or of a Shareholder who is a party to any Other Seller
Agreement, has full and absolute right, power, authority and legal capacity to
execute, deliver and perform this Agreement and all Other Seller Agreements to
which such Shareholder, relative or affiliate is a party, and this Agreement
constitutes, and the Other Seller Agreements shall when executed and delivered
constitute, the legal, valid and binding obligations of, and shall be
enforceable in accordance with their respective terms against, each such
Shareholder, relative or affiliate who is a party thereto. The execution,
delivery and performance of this Agreement and the Other Seller Agreements and
the consummation of the transactions contemplated hereby and thereby shall not
(i) violate any Legal Requirement to which the Company, any Shareholder, or any
relative or affiliate of the Company or of any Shareholder who is a party to any
Other Seller Agreement is subject or any provision of the articles of
incorporation or bylaws of the Company or of any such affiliate, or (ii)
violate, with or without the giving of notice or the lapse of time or both, or
conflict with or result in the breach or termination of any provision of, or
constitute a default under, or give any Person the right to accelerate any
obligation under, or result in the creation of any Encumbrance upon any
properties, assets or business of the Company, of any Shareholder, or of any
such relative or affiliate pursuant to, any indenture, mortgage, deed of trust,
lien, lease, license, Permit, agreement, instrument or other arrangement to
which the Company, any Shareholder or any such relative or affiliate is a party
or by which the Company, any Shareholder, or any such relative or affiliate or
any of their respective assets and properties is bound or subject. Except for
notices that shall be given and consents that shall be obtained by the
Shareholders prior to the Closing (each of which is set forth in Exhibit
3.1(c)), neither the Company, any Shareholder, nor any such relative or
affiliate need give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement and the Other Seller Agreements.
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(d) Financial Statements; Absence of Liabilities. (i) The unaudited
balance sheets of the Company as of December 31, 1999, September 30, 2000 and
October 31, 2000, the related statement of income for each of the 12-month
periods then ended, the audited (by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇) balance sheet of the
Company as of September 30, 2000 (the latter being referred to as the "Latest
Balance Sheet"), and the related reviewed statement of income for the 9-month
period then ended have been prepared in accordance with GAAP on a consistent
basis and on a basis consistent with the accounting practices of PentaStar, are
in accordance with the books and records of the Company (which books and records
are complete and correct in all material respects), and fairly present the
financial position and results of operations of the Company in all material
respects as of such dates and for each of the periods indicated. As of the date
of each such balance sheet, the Company had no Liability other than those set
forth on each such balance sheet. Copies of the financial statements described
in the first sentence in this Section 3.1(d) are attached as Exhibit
3.1(d)(i)(A). The expenses itemized on Exhibit 3.1(d)(i)(B) and reflected in the
Company's financial performance for the 12-month period ended September 30, 2000
shall not be realized on an on-going basis after the Closing Date.
(ii) Since the date of the Latest Balance Sheet, the Company has
not incurred or become subject to any Liability other than Liabilities incurred
in the ordinary course of business consistent with past practice. As of the
Closing, the Company shall have no Liability (and, to the best knowledge of the
Shareholders, there shall be no basis for the assertion of any Liability),
except for the Retained Liabilities.
(e) Absence of Certain Agreements, Changes or Events.
(i) The Company is not, except as set forth on Exhibit 3.1(e)(i),
a party to or otherwise bound by any material contract or agreement (A) pursuant
to which the Company is obligated to furnish any services, product or equipment
and (B) that has been prepaid with respect to any period after the Closing Date.
(ii) Since January 1, 2000, the Company has not (A) incurred any
debt, indebtedness or other Liability, except current Liabilities incurred in
the ordinary course of business consistent with past practice; (B) delayed or
postponed the payment of accounts payable or other Liabilities beyond stated,
normal terms; (C) sold or otherwise transferred any of its assets or properties;
(D) cancelled, compromised, settled, released, waived, written-off or expensed
any account or note receivable, right, debt or claim involving more than $5,000
in the aggregate or accelerated the collection of any account or note receivable
or Residual Payment Right; (E) changed in any significant manner the way in
which it conducts its business (other than the distribution pursuant to Section
4.7 to the Shareholders of the Excluded Assets as set forth on Exhibit
3.1(e)(ii)(I)); (F), made or granted any individual wage or salary increase in
excess of 10% or $1.00 per hour, any general wage or salary increase, or any
additional benefits of any kind or nature; (G) except as otherwise expressly
permitted by this Section 3.1(e)(ii), (1) entered into any contracts or
agreements, or made any commitments, involving more than $5,000 individually or
in the aggregate or (2) accelerated, terminated, delayed, modified or cancelled
any agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses) involving more than $5,000 individually or in
the aggregate; (H) suffered any material adverse effect or change, including,
without limitation, to or in its business, assets or financial condition or
customer or service provider relationships; (I) made any payment or transfer to
or for the benefit of any shareholder, officer or director or any relative or
affiliate thereof or permitted any Person, including, without limitation, any
shareholder, officer, director or employee or any relative or affiliate thereof,
to withdraw assets from the Company (other than the Excluded Assets distributed
xv
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pursuant to Section 4.7 to the Shareholders as set forth on Exhibit
3.1(e)(ii)(I) and payment to the Shareholders of the proportionate monthly
amount of (1) their respective normal annualized salaries due and payable during
such period or (2) rent due under pre-existing real property leases between the
Company and a Shareholder which are disclosed on Exhibit 3.1(g)(i)); or (J)
agreed to incur, take, enter into, make or permit any of the matters described
in clauses (A) through (I). Further, since October 1, 2000, the Company has
maintained Operational Continuity.
(iii) Exhibit 3.1(e)(iii) lists all orders booked and all customer
contracts entered into by the Company, by month, during the 12-month period from
October 1, 1999 through September 30, 2000 and during each 12-month period
thereafter ending on the last day of each full month prior to the Closing, and
the current status of each such order or contract.
(f) Tax Matters.
(i) The Company has filed all Tax Returns that it was required to
file prior to the Closing Date. All such Tax Returns were correct and complete
in all respects. All Taxes owed by the Company (whether or not shown on any Tax
Return) have been paid when due. The Company is not currently the beneficiary of
any extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There are
no Encumbrances on any of the assets of the Company that arose in connection
with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(iii) To the best knowledge of the Shareholders, there is no basis
for any authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no pending or threatened dispute or claim
concerning any Tax Liability of the Company. Exhibit 3.1(f)(iii) lists all
federal, state, local and foreign income Tax Returns filed with respect to the
Company for taxable periods ended on or after December 31, 1993, indicates those
Tax Returns that have been audited and indicates those Tax Returns that
currently are the subject of audit. The Shareholders have delivered to PentaStar
correct and complete copies of all federal income Tax Returns, examination
reports, and statements of deficiencies filed or assessed against or agreed to
by the Company since December 31, 1993.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) Neither the Company nor any of its shareholders has ever filed
(A) an election pursuant to Section 1362 of the Code that the Company be taxed
as an "S" corporation, except as set forth on Exhibit 3.1(f)(v), or (B) a
consent pursuant to Section 341(f) of the Code relating to collapsible
corporations. The Company has not made any payments, is not obligated to make
any payments and is not a party to any agreement that under certain
circumstances could obligate it to make any payments that shall not be
deductible under Code Section 280G. The Company has not been a United States
real property holding corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section 897(c)(1)(A)(ii). The
Company has disclosed on its federal income Tax Returns all positions taken
therein that could give rise to a substantial understatement of federal income
Tax within the meaning
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of Code Section 6662. The Company is not a party to any Tax allocation or
sharing agreement. The Company has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group the common
parent of which was the Company) and has no Liability for the Taxes of any
Person (other than the Company) under Treasury Regulation Section 1.1502-6 (or
any similar provision of state, local, or foreign law), as a transferee or
successor, by contract or otherwise.
(vi) Exhibit 3.1(f)(vi) sets forth the following information with
respect to the Company as of the most recent practicable date (as well as on an
estimated pro forma basis as of the Closing giving effect to the consummation of
the transactions contemplated hereby): (A) the basis of the Company in the
Acquired Assets; and (B) the amount of any net operating loss, net capital loss,
unused investment or other credit, unused foreign tax credit or excess
charitable contribution allocable to the Company.
(g) Assets and Properties.
(i) (A) The Company has good and marketable title to, or a valid
leasehold interest or interest as a lessee in, the assets and properties used or
held for use by it located on the Premises or shown on the Latest Balance Sheet
or acquired after the date thereof. As of the Closing, all of the Acquired
Assets shall be owned by the Company, free and clear of all Encumbrances. The
Company has not entered into any contract or made any commitment to sell all or
any part of its assets. The Acquired Assets constitute all of the real, personal
and mixed assets and property, both tangible and intangible, including
Intellectual Property, which are being used or held for use by the Company in
the conduct of the business and operations of the Company, consistent with
historical and current practices, other than the Excluded Assets. The Company
owns or leases all equipment and other tangible assets necessary for the conduct
of its business as presently conducted and as presently proposed to be
conducted.
(B) Each such tangible asset material to the Company's
business has been maintained in accordance with normal industry practice and is
in good operating condition and repair (subject to normal wear and tear). All
leases of real property between the Company and any shareholder, officer or
director or any relative or affiliate thereof or of the Company are on fair
market terms (including rent at fair market value). Neither the Shareholders,
nor any relative or affiliate thereof or of the Company, own any asset, tangible
or intangible, which is used in the Company's business, other than real property
leased to the Company on fair market terms and at fair market value pursuant to
leases set forth on Exhibit 3.1(g)(i).
(ii) The Premises constitute all of the real property, buildings
and improvements used by the Company in its business. To the best knowledge of
the Shareholders, the Premises have been occupied, operated and maintained in
accordance with applicable Legal Requirements. The Company has not received
notice of violation of any Legal Requirement or Permit relating to its
operations or its owned or leased properties.
(iii) No party to any lease with respect to any Premises has
repudiated any provision thereof, and there are no disputes, oral agreements or
forbearance programs in effect as to any such lease.
(h) Lists of Contracts and Other Matters. Attached as Exhibit 3.1(h)(i)
is a correct and complete list setting forth the following items, to the extent
such items relate to the Acquired Assets, the Assumed Liabilities or the
business represented by Acquired Assets:
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22
(i) the following contracts and other agreements in effect as of
the date of this Agreement or as of the Closing Date to which the Company is a
party or by which the Company is bound:
(A) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments in
excess of $5,000 per year;
(B) any agreement pursuant to which the Company, or any of the
Shareholders on behalf of the Company, has made a deposit in an amount greater
than $5,000;
(C) any agreement (or group of related agreements) for the
purchase or sale of supplies, products or other personal property, or for the
furnishing or receipt of services, the performance of which shall extend over a
period of more than one year, result in a material loss to the Company or its
business or involve consideration in excess of $5,000;
(D) any agreement concerning a partnership or joint venture;
(E) any agreement (or group of related agreements) under which
the Company has created, incurred, assumed or guaranteed any indebtedness for
borrowed money, or any capitalized lease obligation, in excess of $5,000 or
under which it has granted any Encumbrances on any of its assets, tangible or
intangible;
(F) any agreement concerning confidentiality or
noncompetition;
(G) any agreement with any of its current or former
shareholders, directors or officers or any relative or affiliate thereof (other
than the Company);
(H) any profit sharing, stock option, stock purchase, phantom
stock, stock appreciation, profit participation, deferred compensation,
severance or other plan or arrangement;
(I) any collective bargaining agreement;
(J) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis or any agreement providing
severance benefits;
(K) any agreement under which the Company has advanced or
loaned any amount to any of its directors, officers and employees outside the
ordinary course of business;
(L) any agreement obligating the Company to meet another
party's unspecified requirements for goods or services or obligating it to
purchase an unspecified amount of goods or services based on another party's
ability to supply them;
(M) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations or future prospects of the Company
or its business; or
(N) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $10,000.
xviii
23
(ii) All material claims, deposits, causes of action, choses in
action, rights of recovery, rights of setoff and rights of recoupment of the
Company.
(iii) All material franchises, approvals, Permits, licenses,
Orders, registrations, certificates, variances and similar rights of the Company
(all of which are in full force and effect).
(iv) Each item of Intellectual Property owned by the Company or
which is used by the Company in its business and, in each case where the Company
is not the owner, the owner of the Intellectual Property.
(v) The name of each bank or other financial institution or entity
in which the Company has an account or safe deposit box (with the identifying
account number or symbol) and the names of all persons authorized to draw
thereon or to have access thereto.
The Shareholders have delivered to PentaStar a correct and complete
copy of each written agreement and a written summary setting forth the terms and
conditions of each oral agreement referred to in Section 3.1(h). With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable and
in full force and effect; (B) except for any agreement set forth on Exhibit
3.1(h)(ii) (which agreement(s) shall be terminated, with PentaStar's consent, by
the Company prior to the Closing Date), the agreement shall continue to be
legal, valid, binding, enforceable and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C)
neither the Company nor, to the best knowledge of the Shareholders, any other
party is in breach or default, and, to the best knowledge of the Shareholders,
no event has occurred which, with notice or lapse of time, would constitute a
breach or default, or permit termination, modification or acceleration, under
the agreement; and (D) no party has repudiated any provision of the agreement.
(i) Litigation; Compliance with Applicable Laws and Rights.
(i) There is no outstanding Order against, nor, except as set
forth on Exhibit 3.1(i)(i), is there any litigation, proceeding, arbitration or
investigation by any Governmental Authority or other Person pending or, to the
best knowledge of the Shareholders, threatened against, the Company, its assets
or its business or relating to the transactions contemplated by this Agreement,
nor is there any basis for any such action.
(ii) To the best knowledge of the Shareholders, except as set
forth on Exhibit 3.1(i)(ii), neither the Company nor the Company's assets are in
violation of any applicable Legal Requirement or Right. The Company has not
received notice from any Governmental Authority or other Person of any violation
or alleged violation of any Legal Requirement or Right, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand or notice
has been filed or commenced or is pending or, to the best knowledge of the
Shareholders, threatened against the Company alleging any such violation.
(j) Notes and Accounts Receivable. The notes and accounts receivable of
the Company reflected on its Latest Balance Sheet and all Residual Payment
Rights of the Company, and all notes and accounts receivable and Residual
Payment Rights arising on or prior to the Closing Date, arose and shall arise
from bona fide transactions by the Company in the ordinary course of business
and are valid receivables with trade customers subject to no setoffs or
counterclaims.
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24
(k) Product Quality, Warranty and Liability. All services and products
sold, leased, provided or delivered by the Company to customers on or prior to
the Closing Date conform to applicable contractual commitments, express and
implied warranties, product and service specifications and quality standards,
and there is no basis for any Liability for replacement or repair thereof or
other damages in connection therewith. No service or product sold, leased,
provided or delivered by the Company to customers on or prior to the Closing
Date is subject to any guaranty, warranty or other indemnity beyond the
applicable standard terms and conditions of sale or lease. The Company has no
Liability and there is no basis for any Liability arising out of any injury to a
Person or property as a result of the ownership, possession, provision or use of
any service or product sold, leased, provided or delivered by the Company on or
prior to the Closing Date. All product or service liability claims that have
been asserted against the Company since January 1, 1995, whether covered by
insurance or not and whether litigation has resulted or not, other than those
listed and summarized on Exhibit 3.1(i)(i), are listed and summarized on Exhibit
3.1(k). The parties acknowledge and agree that references in this Section 3.1(k)
to "services" or "products" shall not apply to services or products provided to
customers of the Company by Persons who are service providers (including
BellSouth) to the Company's customers.
(l Insurance. The Company has policies of insurance covering (i) risk
of loss on the Acquired Assets, (ii) products and services liability and
liability for fire, property damage, personal injury and workers' compensation
coverage and (iii) business interruption, all as set forth on Exhibit 3.1(l)(i).
All such insurance policies are valid, in full force and effect and enforceable
in accordance with their respective terms and no party has repudiated any
provision thereof. All such policies shall remain in full force and effect until
the Closing Date. Neither the Company nor any other party to any such policy is
in breach or default (including with respect to the payment of premiums or the
giving of notices) in the performance of any of their respective obligations
thereunder, and no event exists which, with the giving of notice or the lapse of
time or both, would constitute a breach, default or event of default, or permit
termination, modification or acceleration under any such policy. There are no
claims, actions, proceedings or suits arising out of or based upon any of such
policies nor, to the best knowledge of the Shareholders, does any basis for any
such claim, action, suit or proceeding exist. All premiums have been paid on
such policies as of the date of this Agreement and shall be paid on such
policies through the Closing Date. The Company has been covered during the five
years prior to the date of this Agreement by insurance as set forth on Exhibit
3.1(l)(ii). All claims made during such five-year period with respect to any
insurance coverage of the Company, other than those described on Exhibit 3.1(k),
are set forth on Exhibit 3.1(l)(iii).
(m Pension and Employee Benefit Matters.
(i Exhibit 3.1(m)(i) lists each Employee Benefit Plan that is an
Employee Welfare Benefit Plan (the "Company Welfare Plans") or is an Employee
Pension Benefit Plan (the "Company Retirement Plans"). Correct and complete
copies of each Employee Benefit Plan have been delivered to PentaStar by the
Shareholders. No Employee Benefit Plan is a Multiemployer Plan. No Employee
Pension Benefit Plan is a plan that is subject to the Plan Termination Insurance
provisions of Title IV of ERISA.
(ii Each Employee Benefit Plan that is intended to be qualified
under Section 401(a) of the Code is so qualified, has been so qualified during
the period from its adoption to date, has been maintained and administered in
substantial compliance with its terms and with applicable Legal Requirements and
in a manner that would not adversely affect its qualified status, and has
received a currently effective determination letter (or a determination letter
has been timely requested) from the Internal
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25
Revenues Service that the Plan is (or continues to be) currently qualified for
federal income tax purposes. The Shareholders have delivered to PentaStar copies
of such determination letters and any pending applications, and copies thereof
have been attached hereto as part of Exhibit 3.1(m)(ii). Each trust in which
Company Retirement Plan assets are held in exempt from tax pursuant to Section
501(a) of the Code.
(iii Exhibit 3.1(m)(iii) lists each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written or
oral) providing for insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits, supplemental
unemployment benefits, vacation benefits, retirement benefits, deferred
compensation, profit sharing, bonuses, stock options, stock appreciation rights
or other forms of incentive compensation, reduced interest or interest free
loans, mortgages, relocation assistance or post-retirement insurance,
compensation or other benefits that: (A) is not an Employee Benefit Plan; (B) is
entered into, maintained or contributed to, by the Company; and (C) covers any
employee or former employee of the Company or any relative thereof. Such
contracts, plans and arrangements as are described in this Section 3.1(m)(iii),
are hereinafter referred to collectively as the "Benefit Arrangements." Copies
and descriptions (including descriptions of the number and employment
classifications of employees covered by each such Benefit Arrangement) have been
delivered by the Shareholders to PentaStar and attached hereto as part of
Exhibit 3.1(m)(iii). Each Benefit Arrangement has been maintained and
administered in substantial compliance with its terms and with the requirements
prescribed by any and all Legal Requirements that are applicable to each such
Benefit Arrangement.
(iv No Company Welfare Plan is maintained in connection with any
trust described in Section 501(c)(9) of the Code.
(v There have been no prohibited transactions with respect to any
Employee Benefit Plan. No "Fiduciary" (as defined in Section 3(21) of ERISA) has
any Liability for breach of fiduciary duty or any other failure to act or comply
in connection with the administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing or investigation
with respect to the administration or the investment of the assets of any
Employee Benefit Plan (other than routine claims for benefits) is pending or, to
the best knowledge of the Shareholders is threatened. None of the Shareholders
have any knowledge of any basis for any such action, suit, proceeding, hearing
or investigation.
(vi The Company does not maintain and has never maintained nor
contributes, or ever has contributed, or ever has been required to contribute,
to any Company Welfare Plan providing health or medical benefits for current or
future retired or terminated employees, their spouses or their dependents (other
than in accordance with Code Section 4980B). No condition exists that would
prevent the Company from amending or terminating any Company Welfare Plan or
Benefit Arrangement providing health or medical benefits in respect of any
active or retired employees of the Company.
(vii Any Company Welfare Plan that is a "group health plan" (as
defined in Code Section 5000(b)(l)) has been administered in accordance with the
requirements of Part 6 of Subtitle B of Title I of ERISA and Code Section 4980B
and nothing done or omitted to be done in connection with the maintenance or
administration of any Company Welfare Plan that is a "group health plan" has
made or shall make the Company subject to any liability under Title I of ERISA,
excise Tax Liability under Code Section 4980B or has resulted or shall result in
any loss of income exclusion for a participant under Code Sections 105(h) or
106.
xxi
26
(viii There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G or 162(a)(l) of the Code.
(ix The Company has made, before the date of this Agreement, all
required contributions and premium payments under each Employee Benefit Plan and
Benefit Arrangement for all completed fiscal years including contributions that
may not by law have otherwise been required to be made until the due date for
filing the Tax Return for any completed fiscal year.
(n Employees and Labor.
(i) The Company has not received any notice, nor, to the best
knowledge of the Shareholders, is there any reason to believe that any Key
Employee of the Company or any group of employees of the Company has any plans
to terminate his, her or its employment with the Company. To the best knowledge
of the Shareholders, no Key Employee is subject to any agreement, obligation,
Order or other legal hindrance that impedes or might impede such Key Employee
from devoting his or her full business time to the affairs of the Company prior
to the Closing Date and, if such person becomes an employee of the Acquiror or
PentaStar, to the affairs of the Acquiror or PentaStar after the Closing Date.
The Company shall not be required to give any notice under the Worker Adjustment
and Retraining Notification Act, as amended, or any similar Legal Requirement as
a result of this Agreement, the Other Seller Agreements or the transactions
contemplated hereby or thereby. The Company does not have any labor relations
problems or disputes, nor has the Company experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining disputes. The
Company is not a party to or bound by any collective bargaining agreement, there
is no union or collective bargaining unit at the Company's facilities, and no
union organization effort has been threatened, initiated or is in progress with
respect to any employees of the Company.
(ii) Exhibit 3.1(n)(ii) lists (A) the name of each salesperson
(whether such salesperson was an employee or independent contractor) of the
Company who has left the employment of the Company in the 12-month period prior
to the date of this Agreement, (B) the date such salesperson left the employment
of the Company and (C) the dollar amount of orders booked by the Company during
the 12-month period prior to the date such salesperson left the employment of
the Company which were attributable to such salesperson or for which such
salesperson was responsible.
(o Customer and Service Provider Relationships. Exhibit 3.1(o)(i) lists
each customer (a "Principal Customer") and each referral source (a "Principal
Referral Source") that individually or with its affiliates accounted, as a
customer or as a referral source, for 5% or more of the Company's revenues
during the 12-month period ended September 30, 2000. Exhibit 3.1(o)(ii) lists
each Person who is a service provider (including BellSouth) to the Company's
customers, or a Sub-Agent of the Company, as of the date of this Agreement (the
"Principal Providers"). The Company has good commercial working relationships
with its Principal Customers, Principal Referral Sources and Principal Providers
and since October 1, 1999, no Principal Customer, Principal Referral Source or
Principal Provider has cancelled or otherwise terminated its relationship with
the Company, materially decreased its purchases from the Company or such
providers, its referrals to the Company or its services supplied to the Company
or its customers, or threatened to take any such action. The Company and the
Shareholders have no reasonable basis to anticipate any problems with or loss of
business with respect to the Company's customer, referral source, service
provider or Sub-Agent relationships. To the best knowledge of the Shareholders,
no Principal Customer, Principal Referral
xxii
27
Source or Principal Provider has any plans to terminate their relationship with
or referrals to the Company and the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby shall not adversely
affect the relationship of the Company with any Principal Customer, Principal
Referral Source or Principal Provider prior to the Closing Date or of the
Acquiror or PentaStar with any Principal Customer, Principal Referral Source or
Principal Provider after the Closing Date.
(p Environmental Matters. The Company is conducting and at all times
has conducted its business and operations, and has occupied, used and operated
the Premises and all other real property and facilities presently or previously
owned, occupied, used or operated by the Company, in compliance with all
Environmental Obligations and so as not to give rise to Liability under any
Environmental Obligations or to any impact on the Company's business or
activities. The Company has no Liability under any Environmental Obligation, nor
is there any basis for any such Liability.
(q Intellectual Property. The Company owns or has the legal right to
use each item of Intellectual Property required to be identified on Exhibit
3.1(h). To the best knowledge of the Shareholders, the continued operation of
the business of the Company as currently conducted shall not interfere with,
infringe upon, misappropriate or conflict with any Intellectual Property rights
of another Person. To the best knowledge of the Shareholders, no other Person
has interfered with, infringed upon, misappropriated or otherwise come into
conflict with any Intellectual Property rights of the Company or any
Intellectual Property included in the Acquired Assets. Neither the Company nor
any owner of any Intellectual Property included in the Acquired Assets has
granted any license, sublicense or permission with respect to any Intellectual
Property owned or used in the Company's business. No claims are pending or, to
the knowledge of the Shareholders, threatened, that the Company is infringing or
otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property. To the best knowledge of the Shareholders, all of the
Intellectual Property that is owned by the Company is owned free and clear of
all Encumbrances and was not misappropriated from any Person, and all portions
of the Intellectual Property that are licensed by the Company are licensed
pursuant to valid and existing license agreements. The consummation of the
transactions contemplated by this Agreement shall not result in the loss or
material diminution of any such Intellectual Property or rights in Intellectual
Property.
(r Year ▇▇▇▇ ▇▇▇▇▇▇▇▇. To the best knowledge of the Shareholders, the
computer software owned by the Company and all other Intellectual Property used
or held for use by the Company in its business accurately processes and has
accurately processed date/time data (including calculating, comparing, and
sequencing) from, into, and between the twentieth and twenty-first centuries,
and the years 1999 and 2000 and leap year calculations and the date September 9,
1999 when either (i) used as a standalone application, or (ii) integrated into
or otherwise used in conjunction with the third party hardware, software,
firmware and data over which the Shareholders and the Company have no control
("Third Party Products") with which such Company software or other Intellectual
Property was designated or intended to operate at the time such Company software
was (i) developed or (ii) first provided to the Company's customers, or tested
by the Company for such customers, whichever is later. Notwithstanding the
foregoing, the Company shall not be considered to be in breach of the
representation and warranty in the immediately preceding sentence if the failure
of such Company software to comply with such representation and warranty is
attributable solely to (x) a failure by any Third Party Product to accurately
process date/time data (including but not limited to, calculating, comparing,
and sequencing) from, into, and between the twentieth and twenty-first
centuries, and the years 1999 and 2000 and leap year calculations and the date
September 9, 1999; or (y) any modification of the Company software by any party
other than the Company (unless such modification was made at the direction of
the Company).
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(s Brokers' Fees. Except as set forth on Exhibit 3.1(s), neither the
Company nor any Shareholder has, and shall not have as a result of the
consummation of this Agreement, any Liability to pay any fees or commissions to
any broker, finder or agent with respect to the transactions contemplated by
this Agreement.
(t Guaranties. The Company is not a guarantor or otherwise liable for
any Liability (including indebtedness for borrowed money) of any other Person.
Except as set forth on Exhibit 3.1(t), no Person is a guarantor or otherwise
liable for any Liability (including indebtedness for borrowed money) of the
Company.
(u Investment Representations. (i) Each Shareholder is acquiring the
shares of PentaStar Common Stock to be issued to the Shareholder pursuant to
this Agreement (the "PentaStar Shares") for the Shareholder's own account and
not on behalf of any other Person; each Shareholder is aware and acknowledges
that the PentaStar Shares have not been registered under the Securities Act, or
applicable state securities laws, and may not be offered, sold, assigned,
exchanged, transferred, pledged or otherwise disposed of unless so registered
under the Securities Act and applicable state securities laws or an exemption
from the registration requirements thereof is available; (ii) each Shareholder
(or, if such Shareholder is not an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Securities Act, such Shareholder
through such Shareholder's purchaser representative ("Purchaser Representative")
as duly designated pursuant to documentation delivered and reasonably
satisfactory to PentaStar on or before the execution of this Agreement (the
"Purchaser Representative Documents")) has been furnished all information that
the Shareholder deems necessary to enable each Shareholder (and such
Shareholder's Purchaser Representative, if such Shareholder is not an
"accredited investor") to evaluate the merits and risks of an investment in
PentaStar, including, without limitation, the information described on Exhibit
3.1(u)(ii); each Shareholder (and such Shareholder's Purchaser Representative,
if such Shareholder is not an "accredited investor") has had a reasonable
opportunity to ask questions of and receive answers from PentaStar concerning
PentaStar, the PentaStar Shares and any and all matters relating to the
transactions described herein or in the information described on Exhibit
3.1(u)(ii), and all such questions, if any, have been answered to the full
satisfaction of the Shareholder (and such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor"); (iii) no
Person other than the Shareholder has (A) any rights in and to the PentaStar
Shares, which rights were obtained through or from the Shareholder; or (B) any
rights to acquire the PentaStar Shares, which rights were obtained through or
from the Shareholder; (iv) each Shareholder (or such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor") has such
knowledge and experience in financial and business matters (including knowledge
and experience in the business and proposed business of PentaStar) that the
Shareholder (or such Shareholder's Purchaser Representative, if such Shareholder
is not an "accredited investor") is capable of evaluating the merits and risks
involved in an investment in the PentaStar Shares; and each Shareholder is
financially able to bear the economic risk of the investment in the PentaStar
Shares, including a total loss of such investment; (v) each Shareholder has
adequate means of providing for the Shareholder's current needs and has no need
for liquidity in the Shareholder's investment in the PentaStar Shares; the
Shareholder has no reason to anticipate any material change in the Shareholder's
financial condition for the foreseeable future; (vi) each Shareholder is aware
that the acquisition of the PentaStar Shares is an investment involving a risk
of loss and that there is no guarantee that the Shareholder shall realize any
gain from this investment, and that the Shareholder could lose the total amount
of its investment; (vii) each Shareholder understands that no United States
federal or state agency has made any finding of determination regarding the
fairness of the offering of the PentaStar Shares for investment, or any
recommendation or endorsement of the offering of the
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PentaStar Shares; (viii) each Shareholder is acquiring the PentaStar Shares for
investment, with no present intention of dividing or allowing others to
participate in such investment or of reselling, or otherwise participating,
directly or indirectly, in a distribution of PentaStar Shares, and shall not
make any sale, transfer or pledge thereof without registration under the
Securities Act and any applicable securities laws of any state, unless an
exemption from registration is available, as established to the reasonable
satisfaction of PentaStar, by opinion of counsel or otherwise; (ix) except as
set forth herein, no representations or warranties have been made to any
Shareholder (or such Shareholder's Purchaser Representative, if such Shareholder
is not an "accredited investor") by PentaStar or any agent, employee or
affiliate of PentaStar, and in entering into this transaction each Shareholder
is not relying upon any information, other than from the results of independent
investigation by the Shareholder (or such Shareholder's Purchaser
Representative, if such Shareholder is not an "accredited investor"); and (x)
each Shareholder understands that the PentaStar Shares are being offered to the
Shareholder in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that
PentaStar is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgments and understandings of the Shareholder
set forth herein (and in the Purchaser Representative Documents, if applicable)
in order to determine the applicability of such exemptions and the suitability
of the Shareholder to acquire the PentaStar Shares; and (xi) except as set forth
on Exhibit 3.1(u)(xi), each Shareholder is an "accredited investor" as defined
in Rule 501(a) of Regulation D promulgated under the Securities Act. Exhibit
3.1(u)(xi) also sets forth each Shareholder's state of residency.
All the certificates representing PentaStar Shares shall bear the
following legend, in addition to the legend required by Section 5.10:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") NOR UNDER ANY STATE SECURITIES LAWS AND CAN
NOT BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED UNTIL EITHER (I) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS DECLARED EFFECTIVE UNDER THE ACT
AND APPLICABLE STATE SECURITIES LAWS OR (II) THE COMPANY RECEIVES AN OPINION OF
COUNSEL TO THE COMPANY OR OTHER COUNSEL TO THE HOLDER OF SUCH SHARES, WHICH
OPINION IS SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH SECURITIES MAY
BE TRANSFERRED, SOLD, ASSIGNED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE
ACT OR APPLICABLE STATE SECURITIES LAWS.
(v Disclosure. None of the documents or information provided to
PentaStar by the Company, any Shareholder or any agent or employee thereof in
the course of PentaStar's due diligence investigation and the negotiation of
this Agreement and Section 3.1 of this Agreement and the disclosure Exhibits
referred to therein, including the financial statements referred to above in
Section 3.1, contain any untrue statement of any material fact or omit to state
a material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact which materially adversely affects the
business, condition, affairs or operations of the Company or any of its assets
or properties which has not been set forth in this Agreement or such Exhibits,
including such financial statements.
Nothing in the disclosure Exhibits referred to in Section 3.1 shall be
deemed adequate to disclose an exception to a representation or warranty made
herein unless the applicable disclosure Exhibit identifies the exception with
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless
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the representation or warranty has to do with the existence of the document or
other item itself). Each Shareholder acknowledges and agrees that the fact that
they have made disclosures pursuant to Section 3.1 or otherwise of matters, or
did not have knowledge of matters, which result in Adverse Consequences to
PentaStar or the Acquiror shall not relieve the Shareholders of their obligation
pursuant to Section 7 of this Agreement to indemnify and hold PentaStar and the
Acquiror harmless from Adverse Consequences as required by Section 7.
3.2. Representations and Warranties of PentaStar. PentaStar represents and
warrants to the Shareholders that the statements contained in this Section 3.2
are correct and complete as of the date of this Agreement and shall be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
Section 3.2).
(a Organization, Good Standing, Power, Etc. Each of PentaStar and the
Acquiror is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and is qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
nature of the businesses conducted by it or the properties owned, leased or
operated by it make such qualification necessary. This Agreement and the Other
PentaStar Agreements and the transactions contemplated hereby and thereby have
been duly approved by all requisite corporate action. Each of PentaStar and the
Acquiror have full corporate power and authority to execute, deliver and perform
this Agreement and the Other PentaStar Agreements to which it is a party, and
this Agreement constitutes, and the Other PentaStar Agreements shall when
executed and delivered constitute, the legal, valid and binding obligations of
PentaStar or the Acquiror, as the case may be, and shall be enforceable in
accordance with their respective terms against PentaStar or the Acquiror, as the
case may be.
(b Capitalization.
(i) The authorized, issued and outstanding shares of the capital
stock of PentaStar are as set forth on Exhibit 3.2(b)(i).
(ii) At the time of issuance thereof and delivery to a
Shareholder, the PentaStar Shares to be delivered to the Shareholder pursuant to
this Agreement shall be duly authorized and validly issued shares of PentaStar's
Common Stock, and shall be fully paid and nonassessable. Such PentaStar Shares
shall at the time of such issuance and delivery be free and clear of any
Encumbrances of any kind or character, other than those arising under applicable
federal and state securities laws, under this Agreement or under any Other
Seller Agreement to which the Shareholder is a party.
(iii) All of the issued and outstanding capital stock of the
Acquiror is owned by PentaStar.
(c No Violation of Agreements, Etc. The execution, delivery and
performance of this Agreement and the Other PentaStar Agreements, and the
consummation of the transactions contemplated hereby and thereby shall not (i)
violate any Legal Requirement to which PentaStar or the Acquiror is subject or
any provision of the certificate of incorporation or bylaws of PentaStar or the
Acquiror or (ii) violate, with or without the giving of notice or the lapse of
time or both, or conflict with or result in the breach or termination of any
provision of, or constitute a default under, or give any Person the right to
accelerate any obligation under, or result in the creation of any Encumbrance
upon any properties, assets or business of PentaStar or the Acquiror pursuant
to, any indenture, mortgage, deed of trust, lien, lease, license, agreement,
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instrument or other arrangement to which PentaStar or the Acquiror is a party or
by which PentaStar or the Acquiror or any of their respective assets and
properties is bound or subject. Except for notices and consents that shall be
given or obtained by PentaStar prior to the Closing, neither PentaStar nor the
Acquiror need give any notice to, make any filing with or obtain any
authorization, consent or approval of any Governmental Authority or other Person
in order for the parties to consummate the transactions contemplated by this
Agreement.
(d SEC Filings; Financial Statements.
(i PentaStar has filed all reports, registration statements and
other filings, together with any amendments or supplements required to be made
with respect thereto, that it has been required to file with the SEC under the
Securities Act and the Exchange Act. As of the respective dates of their filing
with the SEC, the SEC Filings complied in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
(ii Each of the historical consolidated financial statements of
PentaStar (including any related notes or schedules) included in the SEC Filings
was prepared in accordance with GAAP (except as may be disclosed therein) and
complied in all material respects with the applicable rules and regulations of
the SEC. Such financial statements fairly present in all material respects the
consolidated financial position of PentaStar and its consolidated Subsidiaries
as of the dates thereof and the consolidated results of operations, cash flows
and changes in stockholders' equity for the periods then ended (subject, in the
case of the unaudited interim financial statements, to normal, recurring
year-end audit adjustments).
(e Brokers' Fees. Neither PentaStar nor the Acquiror has, and shall not
have as a result of the consummation of this Agreement, any Liability to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
3.3. Survival of Representations. The representations and warranties
contained in Sections 3.1 and 3.2 and the Liabilities of the parties with
respect thereto shall survive any investigation thereof by the parties and shall
survive the Closing for three years, except that (a) the Liabilities of the
Shareholders with respect to the representations and warranties set forth in
Sections 3.1(f), 3.1(m) and 3.1(p) and the Liabilities of PentaStar with respect
to the representations and warranties set forth in Section 3.2(d) shall survive
until the end of the applicable statute of limitations and (b) the Liabilities
of the Shareholders with respect to the representations and warranties set forth
in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(g)(i)(A), 3.1(q) and 3.1(u) and the
Liabilities of PentaStar with respect to the representations and warranties set
forth in Sections 3.2(a), 3.2(b) and 3.2(c), shall survive without termination.
3.4. Representations as to Knowledge. The representations and warranties
contained in Article 3 hereof shall in each and every case where an exercise of
discretion or a statement to the "best knowledge," "best of knowledge" or
"knowledge" is required on behalf of any party to this Agreement be deemed to
require that such exercise of discretion or statement be in good faith after
reasonable investigation (including, in the case of the Shareholders, inquiry of
the applicable employees of the Company, with due diligence, to the best efforts
of such party and be exercised always in a reasonable manner and within
reasonable times.
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4. Pre-Closing Covenants. The parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
4.1. General. Each of the parties shall use its reasonable best efforts to
take all actions necessary, proper or advisable in order to consummate and make
effective the transactions contemplated by this Agreement (including the
satisfaction, but not the waiver, of the closing conditions set forth in Section
6) and the other agreements contemplated hereby. Without limiting the foregoing,
the Shareholders shall, and shall cause the Company to, give any notices, make
any filings and obtain any consents, authorizations or approvals needed to
consummate the transactions contemplated by this Agreement.
4.2. Operation and Preservation of Business. The Shareholders shall not
cause or permit the Company to engage in any practice, take any action or enter
into any transaction outside the ordinary course of its business consistent with
past practice; provided, however, that in no event shall any action be taken or
fail to be taken or any transaction be entered into which would result in a
breach of any representation, warranty or covenant of any Shareholder. The
Shareholders shall cause the Company to keep its business and properties,
including its current operations, physical facilities, working conditions and
relationships with customers, service providers, Sub-Agents, lessors, licensors
and employees, intact.
4.3. Full Access. The Shareholders shall cause the Company to permit
PentaStar and its agents to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of the
Company, to all premises, properties, personnel, books, records (including Tax
records), contracts and documents of or pertaining to the Company.
4.4. Notice of Developments. The Shareholders shall give prompt written
notice to PentaStar of any material development which occurs after the date of
this Agreement and before the Closing and affects the business, assets,
Liabilities, financial condition, operations, results of operations, future
prospects, representations, warranties, covenants or disclosure Exhibits of the
Company. No such written notice, however, shall be deemed to amend or supplement
any disclosure Exhibit or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
4.5. Exclusivity. No Shareholder shall, and the Shareholder shall not cause
or permit the Company to, (a) solicit, initiate or encourage the submission of
any proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any portion of the assets of, the Company
(including any acquisition structured as a merger, consolidation or share
exchange) or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in or facilitate
in any other manner any effort or attempt by any Person to do or seek any of the
foregoing. No Shareholder shall vote shares of the Company's stock in favor of
any such transaction. The Shareholders shall notify PentaStar immediately if any
Person makes any proposal, offer, inquiry or contact with respect to any of the
foregoing.
4.6. Announcements; Securities Law Restrictions. Prior to the Closing,
neither any Shareholder nor the Company shall disclose to any Person, nor issue
any press release or make any public announcement concerning, the existence,
terms or subject matter of this Agreement without the prior written approval of
PentaStar, except (and only to the extent) previously publicly announced by
PentaStar or to obtain consents required by this Agreement. Further, neither any
Shareholder nor the Company shall violate the United States securities laws
which restrict the Shareholders and the Company, as Persons with material
non-public information concerning PentaStar obtained directly or indirectly from
PentaStar, from purchasing or selling
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securities of PentaStar or from communicating such information to any other
Person under any circumstances in which it is reasonably foreseeable that such
Person is likely to purchase or sell such securities.
4.7. Closing Date Liabilities and Excluded Assets.
(a Prior to the Closing Date, the Shareholders shall pay, or shall
cause the Company to pay prior to the Closing Date, in full all Closing Date
Liabilities in excess of the amounts set forth on the Estimated Closing Date
Balance Sheet. Effective as of immediately prior to the Closing Date, the
Shareholders hereby assume all Closing Date Liabilities in excess of the amounts
set forth on the Estimated Closing Date Balance Sheet without further action by
any Shareholder, the Company or any other Person.
(b Prior to the Closing Date, the Shareholders shall have caused the
Company to distribute to the Shareholders the Excluded Assets.
4.8. Conveyance of Shareholder Property. Prior to the Closing Date, each
Shareholder shall convey, and shall cause each relative or affiliate of the
Company or of such Shareholder to convey, to the Company, free and clear of any
Encumbrance or Tax, all of such Shareholder's and each such relative's or
affiliate's right, title and interest to any tangible or intangible asset
(excluding real property, improvements and fixtures, other than trade fixtures)
which is used by the Company and owned or leased by such Shareholder or relative
or affiliate of the Company or of the Shareholder (the "Shareholder Property").
In the event that any of the Shareholder Property is leased rather than owned by
a Shareholder or relative or affiliate of the Company or of such Shareholder,
the Shareholder shall cause the lessee thereof to purchase such property prior
to the Closing Date in order to be able to convey it to the Company as required
by this Section.
4.9. Conveyance of Capital Lease Property. Prior to the Closing Date, the
Company shall purchase from the lessors thereof all of the property identified
on Exhibit 4.9 (which is held under capital, rather than operating, leases) (the
"Capital Lease Property"), so that the Capital Lease Property is owned by the
Company immediately prior to the Closing as an Acquired Asset, free and clear of
any Encumbrance or Tax.
5. Post-Closing Covenants. The parties agree as follows with respect to the
period following the Closing.
5.1. Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the parties shall take such further action (including the execution and
delivery of such further instruments and documents) as any other party
reasonably may request, all at the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Section 7).
5.2. Transition. No Shareholder shall take any action at any time that is
designed or intended to have the effect of discouraging any customer, service
provider, Sub-Agent, lessor, licensor, employee or other business associate of
the Company from establishing or continuing a business relationship with the
Acquiror or PentaStar after the Closing.
5.3. Cooperation. In the event and for so long as any party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand in connection with (a) any
transaction contemplated by this Agreement or (b) any fact, situation,
circumstance, status,
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condition, activity, practice, plan, occurrence, event, incident, action,
failure to act or transaction on or prior to the Closing Date involving any of
the Acquired Assets or the Company's business, each of the other parties shall
cooperate with such party and its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be reasonably necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending party
(unless the contesting or defending party is entitled to indemnification
therefor under Section 7 or unless the dispute is between the parties to this
Agreement).
5.4. Confidentiality. The Shareholders shall treat and hold as confidential
all Confidential Information concerning PentaStar, the Company's business or the
Acquired Assets, refrain from using any such Confidential Information and
deliver promptly to PentaStar or destroy, at the request and option of
PentaStar, all of such Confidential Information in its or their possession.
5.5. Post-Closing Announcements. Following the Closing, no Shareholder
shall issue any press release or make any public announcement relating to the
subject matter of this Agreement without the prior written approval of
PentaStar.
5.6. Financial Statements. The Shareholders shall, upon request of
PentaStar, cooperate with PentaStar and render such assistance to PentaStar and
its accountants as may be reasonably (given the facts and circumstances and
PentaStar's status as a public company which is subject to the reporting
obligations of the Exchange Act) required to produce such historical and
on-going financial statements and audits as PentaStar may request, including,
without limitation, signing management representation letters reasonably
requested by PentaStar's auditors, all at the sole cost and expense of
PentaStar, but without additional consideration to the Shareholders. The
Shareholders acknowledge that PentaStar may be required by applicable Legal
Requirement to include audited financial statements with respect to the business
of the Company in reports filed with governmental agencies and that the
inability to audit the financial statements as of the Effective Date promptly
after the Closing could have a material adverse effect on PentaStar.
5.7. Satisfaction of Liabilities.
(a Promptly following the Closing, the Shareholders shall pay when due
all Closing Date Liabilities in excess of the amounts set forth on the Estimated
Closing Date Balance Sheet to the extent not previously paid and any Taxes
attributable to the transactions contemplated by this Agreement. In addition,
any and all Taxes attributable to the assumption of the Closing Date Liabilities
under Section 4.7(a) or to the distribution of the Excluded Assets under Section
4.7(b), and to any pre-Closing distribution or dividend of assets, including,
without limitation, any recognition by the Company of taxable income or gain
with respect to the distribution or dividend of the Excluded Assets or any
pre-Closing distribution or dividend of assets, shall be Closing Date
Liabilities and shall be paid in full by the Shareholders, and neither the
Company nor PentaStar shall have any Liability with respect thereto.
(b The Shareholders, at their expense, promptly shall take or cause to
be taken any action necessary to remedy any failure of the Premises or the
acquired business to comply at the Closing Date with any Legal Requirement, upon
receipt of notice from PentaStar at any time.
(c The Acquiror shall pay and perform, as and when due (except to the
extent the validity thereof or the Liability therefor is being contested by the
Acquiror), the Retained Liabilities.
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5.8. Repurchase of Unpaid Receivables. The Shareholders jointly and
severally guarantee that the Closing Accounts Receivable, net of any reserve
established on the Latest Balance Sheet in accordance with GAAP on a basis
consistent with the accounting practice of PentaStar, shall be fully paid to the
Acquiror in accordance with their terms at their recorded amounts not later than
180 days from the Closing Date. Upon demand by PentaStar at any time after 180
days from the Closing Date, the Shareholders shall jointly and severally pay to
the Acquiror the full amount of any unpaid Closing Accounts Receivable which is
the subject of such demand. Upon such payment to the Acquiror, the Closing
Accounts Receivable which are so paid for by the Shareholders shall, without
further action of any party, become the property of the Shareholders, who may
pursue collection thereof; provided, however, that the Shareholders shall notify
the account obligor that such collection efforts are not being undertaken on
behalf of PentaStar. From the Closing until 180 days after the Closing Date,
PentaStar (through the Acquiror) shall apply its standard accounts receivable
collection procedures to the Closing Accounts Receivable; provided, however,
neither the Acquiror nor PentaStar shall not be required to institute suit,
utilize third-party collection agencies or other agents or take other
extraordinary collection actions with respect to the Closing Accounts
Receivable; and, provided further, that any failure of any collection activities
of the Acquiror, PentaStar or any such collection agency or other agent shall
not relieve the Shareholders from their guarantee of the Closing Accounts
Receivable as described in this Section 5.8.
5.9. Termination of Obligations. Effective as of the Closing Date, the
Surviving Corporation shall not have any Liability to any Shareholder or any
relative or affiliate thereof or of the Company, except as otherwise provided in
this Agreement or in an Other Seller Agreement. Effective as of the Closing
Date, no Shareholder shall have any Liability to the Surviving Corporation,
except as otherwise provided in this Agreement, in an Other Seller Agreement or
in any other written agreement entered into on or after the Closing Date.
5.10. Transfer Restrictions. Unless otherwise agreed by PentaStar, except
for transfers by a Shareholder to (a) immediate family members of such
Shareholder who agree to be bound by the restrictions set forth in this Section
5.10 (and a copy of such agreement is furnished to PentaStar prior to the
transfer), (b) trusts, limited partnerships or other estate planning entities
for the benefit of such Shareholder or family members of such Shareholder, the
trustees, partners or other persons having authority to bind the trust, limited
partnership or other estate planning entity of which agree to be bound by such
restrictions (and a copy of such agreement is furnished to PentaStar prior to
the transfer), or (c) any charitable organization that qualifies for receipt of
charitable contributions under Section 170(c) of the Code and such organization
agrees to be bound by such restrictions (and a copy of such agreement is
furnished to PentaStar prior to the transfer), each Shareholder agrees that the
Shareholder shall not sell, assign, exchange, transfer, pledge or otherwise
dispose of at any time prior to the date which is 18 months after the Closing
any of the PentaStar Shares received by the Shareholder pursuant to this
Agreement. Thereafter, up to 33% of the PentaStar Shares received pursuant to
this Agreement by the Shareholder may be resold at any time, and an additional
17% of the PentaStar Shares received pursuant to this Agreement by the
Shareholder may be resold by the Shareholder beginning 24 months after the
Closing. Any remaining PentaStar Shares may not be sold until the earlier to
occur of (w) the sale of all or substantially all of the assets or outstanding
shares of PentaStar, whether by way of merger, acquisition or other method
(except a merger or consolidation immediately after which the Persons who were
shareholders of PentaStar before the transaction own a majority of the
outstanding equity securities of the surviving or resulting entity) or (x)
October 26, 2004 (the earlier to occur of (w) or (x) being referred to as a
"PentaStar Liquidity Event"). Notwithstanding anything to the contrary in this
Section 5.10, (y) none of the PentaStar Shares which are the subject of the
Escrow Deposit may be
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sold, assigned, exchanged, transferred, pledged or otherwise disposed of unless
and until released to the Shareholders from the Escrow Deposit and (z) none of
the PentaStar Shares which are subject to the Principal Shareholder's Escrow
Agreement may be sold, assigned, exchanged, transferred, pledged or otherwise
disposed of except as set forth in the Principal Stockholder's Escrow Agreement.
Certificates for the PentaStar Shares delivered to the Shareholders pursuant to
the Agreement shall bear a legend substantially in the form set forth below as
long as applicable:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THAT CERTAIN AGREEMENT
AND PLAN OF MERGER ENTERED INTO ON __________ ___, 2000, (THE "AGREEMENT") BY
AND AMONG THE ISSUER, PENTASTAR ACQUISITION CORP. VII, LYNX COMMUNICATIONS, INC.
AND THE SHAREHOLDERS OF LYNX COMMUNICATIONS, INC. PRIOR TO THE EXPIRATION OF THE
HOLDING PERIODS SET FORTH IN THE AGREEMENT, SUCH SHARES MAY NOT BE SOLD,
ASSIGNED, EXCHANGED, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF WITHOUT THE
WRITTEN CONSENT OF THE ISSUER, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE
EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE, TRANSFER, PLEDGE OR OTHER
DISPOSITION WHICH VIOLATES THE AGREEMENT. UPON THE WRITTEN REQUEST OF THE HOLDER
OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND (AND
ANY STOP ORDER RELATING TO THIS RESTRICTIVE LEGEND PLACED WITH THE TRANSFER
AGENT) WHEN THE APPLICABLE HOLDING PERIOD HAS EXPIRED.
PentaStar shall issue separate certificates to each Shareholder
representing the shares of PentaStar Shares subject to each of the three periods
of restriction contemplated by this Section 5.10.
The restrictions set forth above in this Section 5.10 shall be in addition
to any restrictions on transfer set forth in Section 3.1(u) or imposed by the
Securities Act and applicable state securities laws. Each Shareholder also
agrees to comply with such restrictions.
5.11. Tax Returns. The Shareholders shall be responsible for the timely
filing of the Company's Tax Returns for the 1999 tax year and the short tax year
from January 1, 2000 through the Closing Date and for the timely payment of all
income or other Taxes relating to those periods; provided, however, that in any
event the Shareholders shall, within 30 days of the Closing, file amended Tax
Returns for the Company for the 1999 tax year and Tax Returns for the short tax
year from January 1, 2000 through the Closing Date reflecting the matters set
forth on Exhibit 5.11. The Acquiror shall make the books and records of the
Company available to the Shareholders as required for the preparation of such
Tax Returns or for any subsequent audit or examination of any Tax Return of the
Company for any period ending with or prior to the Closing Date. The Acquiror
shall notify the Shareholders of any inquiry, audit or examination of which
PentaStar receives notice relating to the Company's Tax Returns for any period
ending with or prior to the Closing Date and the Shareholders shall have the
right, subject to Section 7, to control the defense and settlement of any such
inquiry, audit or examination. PentaStar shall not file any amended Tax Return
for the Company for any period ending with or prior to the Closing Date without
the consent of the Shareholders, unless required to do so by applicable Legal
Requirement. The Shareholders shall afford PentaStar a reasonable opportunity
tor review any new or amended Tax Return for the Company filed by the
Shareholders hereunder and shall not make any election or take any other action
on any such return that would increase the Tax Liability of PentaStar or the
Acquiror for periods after the Closing Date.
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5.12. Sales Commissions. Neither any Shareholder nor any relative or
affiliate of any Shareholder may receive from the Acquiror sales commissions or
other remuneration in respect of sales made by the Acquiror.
5.13. Certain Compensation. Unless otherwise agreed by PentaStar, any
increase in compensation to ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ from the amount in effect on
September 1, 2000 shall occur no later than December 1, 2000 and be effective no
later than December 1, 2000. Unless otherwise agreed by PentaStar, her
compensation shall not be changed during her employment by the Acquiror.
6. Conditions to Closing.
6.1. Conditions to Obligation of PentaStar. The obligation of PentaStar to
consummate the transactions contemplated by this Agreement is subject to
satisfaction of the following conditions:
(a) each Shareholder's representations and warranties shall be correct
and complete at and as of the Closing Date and the Closing, and any written
notices delivered to PentaStar pursuant to Section 4.4 and the subject matter
thereof shall be satisfactory to PentaStar;
(b) the Shareholders shall have performed and complied with all of
their covenants hereunder through the Closing;
(c) the Shareholders shall have given, or shall have caused the Company
to give, all notices and shall have procured, or shall have caused the Company
to procure, all of the third-party consents, authorizations and approvals
required to consummate the transactions contemplated by this Agreement,
including the Transaction, all in form and substance reasonably satisfactory to
PentaStar;
(d) no action, suit or proceeding shall be pending or threatened before
any Governmental Authority or any other Person wherein an unfavorable Order
would (i) prevent consummation of any of the transactions contemplated by this
Agreement, (ii) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation or (iii) affect adversely the right of the
Acquiror to own the Acquired Assets and conduct the acquired business, and no
such Order shall be in effect;
(e) there shall have been no adverse change in the Company, the
Acquired Assets or the Company's business between the date of execution of this
Agreement and the Closing;
(f) the Shareholders shall have delivered to PentaStar (i) a
certificate to the effect that each of the conditions specified above in
Sections 6.1(a) through (e) is satisfied in all respects and (ii) a good
standing certificate, dated within 10 days of the Closing, from the Secretary of
State of the State of the Company's jurisdiction of incorporation and each other
state in which the Company is qualified or authorized to do business as a
foreign corporation;
(g) the Other Seller Agreements shall have been executed and delivered
by the parties thereto other than PentaStar and the Acquiror;
(h) PentaStar and the Acquiror shall have received from counsel to the
Shareholders an opinion in form and substance as set forth in Exhibit 6.1(h)
addressed to PentaStar and the Acquiror and dated as of the Closing;
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(i) PentaStar shall have completed its due diligence with respect to
the Company with results satisfactory to PentaStar;
(j) the owners of the real property underlying the Premises leases, and
each Person having an Encumbrance on such property, shall have executed and
delivered estoppel, nondisturbance and landlord waiver agreements relating
thereto satisfactory to PentaStar;
(k) financing necessary for the consummation of the transactions
contemplated hereby and the operation of the acquired business shall be
available to the Acquiror on terms and conditions satisfactory to PentaStar;
(l) PentaStar shall have received from the Shareholders UCC, lien,
litigation and judgment searches with respect to the Company and evidence of the
termination of all Encumbrances filed against the Company or any Acquired
Assets;
(m) PentaStar shall have received the resignations, effective as of the
Closing, of each director and officer of the Company;
(n) stock certificates representing the Shares duly endorsed in blank
or accompanied by stock powers duly executed in blank, shall have been delivered
by the Shareholders to PentaStar;
(o) the Shareholders shall have delivered to PentaStar possession and
control of the Company and the Acquired Assets, including, without limitation,
all stock certificate books, minute books, corporate seals, and all other
corporate and financial records of the Company; and
(p) the Shareholders shall have delivered, or caused the Company to
deliver, to PentaStar such other instruments, certificates and documents as are
reasonably requested by PentaStar in order to consummate the transactions
contemplated by this Agreement, all in form and substance reasonably
satisfactory to PentaStar.
PentaStar may waive any condition specified in this Section 6.1 at or prior to
the Closing.
6.2. Conditions to Obligation of the Shareholders. The obligation of the
Shareholders to consummate the transactions contemplated by this Agreement is
subject to satisfaction of the following conditions:
(a) PentaStar's representations and warranties shall be correct and
complete at and as of the Closing Date and the Closing;
(b) PentaStar shall have performed and complied with all of its
covenants hereunder through the Closing Date;
(c) PentaStar shall have delivered to the Shareholders a certificate to
the effect that each of the conditions specified above in Sections 6.2(a)
through (b) is satisfied in all respects;
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(d) the Other PentaStar Agreements shall have been executed and
delivered by PentaStar and the Acquiror, as applicable;
(e) and the Shareholders shall have received from counsel to PentaStar
an opinion in form and substance as set forth in Exhibit 6.2(e), addressed to
the Shareholders and dated as of the Closing; and
(f) The Acquiror shall have paid, issued and deposited the portion of
the Purchase Price due at the Closing pursuant to Section 2.1.
The Shareholders' Agent may waive any condition specified in this Section 6.2 at
or prior to the Closing.
7. Remedies for Breaches of This Agreement.
7.1. Indemnification Provisions for Benefit of PentaStar.
(a) If any Shareholder breaches (or if any Person other than PentaStar
alleges any fact that, if true, would mean any Shareholder has breached) any of
the representations or warranties of any Shareholder contained herein and
PentaStar gives notice thereof to the Shareholders' Agent within the Survival
Period, or if any Shareholder breaches (or if any Person other than PentaStar
alleges any fact that, if true, would mean any Shareholder has breached) any
covenants of any Shareholder contained herein or any representations, warranties
or covenants of any Shareholder contained in any Other Seller Agreement and
PentaStar gives notice thereof to the Shareholders' Agent, then the Shareholders
agree to jointly and severally indemnify and hold harmless PentaStar and the
Acquiror from and against any Adverse Consequences PentaStar or the Acquiror may
suffer resulting from, arising out of, relating to or caused by any of the
foregoing regardless of whether the Adverse Consequences are suffered during or
after the Survival Period; provided, however, that the Shareholders shall not
have any obligation to indemnify PentaStar or the Acquiror from and against any
Adverse Consequences based upon the breach (or alleged breach) of any
representation or warranty of any Shareholder contained in Section 3.1 (other
than those contained in Section 3.1(a), 3.1(b), 3.1(c), 3.1(f), 3.1(g)(i)(A),
3.1(m), 3.1(q) and 3.1(u)) until PentaStar and the Acquiror have collectively
suffered Adverse Consequences by reason of any or all such breaches (or alleged
breaches) in excess of $10,000 in the aggregate, at which point the Shareholders
shall be obligated to jointly and severally indemnify PentaStar and the Acquiror
from and against the entirely of all Adverse Consequences from the first dollar;
and provided, further, that the aggregate indemnification obligation of the
Shareholders for breaches of representations and warranties shall be limited to
the amount of the Purchase Price (less any amount forfeited in respect of the
EBITA Escrow) plus the amount of the Retained Liabilities described in clause
(b) of the definition thereof. In determining whether there has been a breach of
any representation or warranty contained in Section 3.1 and in determining for
purposes of the preceding sentence the amount of Adverse Consequences suffered
by PentaStar or the Acquiror, such representations and warranties shall not be
qualified (other than by the references to "knowledge" set forth in the first
sentence of Section 3.1(n)(i) and the last sentence of Section 3.1(o)) by
"material," "materiality," "in all material respects," "best knowledge," "best
of knowledge" or "knowledge" or words of similar import, or by any phrase using
any such terms or words. The Shareholders also agree to jointly and severally
indemnify and hold harmless PentaStar and the Acquiror from and against any
Adverse Consequences PentaStar or the Acquiror may suffer which result from,
arise out of, relate to or are caused by (i) any Liability of the Company or any
Shareholder not included in the Retained Liabilities or (ii) any condition,
circumstance or activity existing prior to the Closing Date which relates to any
Legal Requirement or any act or omission of the Company or any current or former
shareholder of the Company or any predecessor with respect to, or any event or
circumstance related to, the
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Company's, any current or former shareholder's or any predecessor's ownership,
use or operation of any of the Acquired Assets, the Excluded Assets, the
Premises or any other assets or properties or the conduct of its or their
business, regardless, in the case of (i) or (ii), of (A) whether or not such
Liability, act, omission, event, circumstance or matter was known or disclosed
to PentaStar, was disclosed on any Exhibit hereto or is a matter with respect to
which any Shareholder did or did not have knowledge, (B) when such Liability,
act, omission, event, circumstance or matter occurred, existed, occurs or exists
and (C) whether a claim with respect thereto was asserted before or is asserted
after the Closing Date. If any dispute arises concerning whether any
indemnification is owing which cannot be resolved by negotiation among the
parties within 30 days of notice of claim for indemnification from the party
claiming indemnification to the party against whom such claim is asserted, the
dispute shall be resolved by arbitration pursuant to this Agreement. If
PentaStar or the Acquiror is sued in an action relating in whole or in part to a
claim against which it is or may be entitled to indemnification hereunder, it
may, at its option, join the Shareholders in that action and have its right to
indemnification adjudicated by the court.
(b) Amounts needed to cover any indemnification claims by PentaStar or
the Acquiror against the Shareholders during the Escrow Period may be taken by
PentaStar or the Acquiror out of the Escrow Deposit, subject to the requirement
of the Escrow Agreement that amounts are to be released from the Escrow Deposit
only upon the joint written instruction of PentaStar and the Shareholders'
Agent. At the end of the Escrow Period, amounts of the Escrow Deposit which may
reasonably be needed to cover pending indemnification claims made by PentaStar
or the Acquiror (such amounts to be determined by PentaStar based upon the good
faith exercise of its business judgment) shall be retained in the Escrow Account
until such claims are resolved, and any excess amount of the Escrow Deposit
shall be paid to the Shareholders. For purposes of indemnification claims, each
of the shares of PentaStar Common Stock shall be valued at its Fair Market Value
as of the date that it is delivered from the Escrow Account. PentaStar and the
Shareholders' Agent shall jointly give instructions to the Escrow Agent to carry
out the intent of this Section 7.1(b). Any disputes concerning the escrowed
property shall be settled by arbitration as provided in this Agreement.
PentaStar and the Acquiror, on the one hand, and the Shareholders, on the other
hand, shall each be responsible for one-half of the fees, charges and expenses
payable to the Escrow Agent pursuant to the Escrow Agreement. Nothing in this
Section 7.1(b) shall be construed to limit PentaStar's or the Acquiror's right
to indemnification to amounts on deposit in the Escrow Account or to require
that the Escrow Account first be exhausted before PentaStar or the Acquiror may
resort to any other remedy available under this Agreement or otherwise. The
Shareholders shall be jointly and severally liable to PentaStar and the Acquiror
for any amounts needed to cover claims by PentaStar or the Acquiror, which
amounts shall be paid directly to PentaStar or the Acquiror as the case may be.
(c) During the time that any PentaStar Shares are held in the Escrow
Deposit, the Shareholders shall have the right to vote such shares and shall
have the economic benefit of any dividends paid on such shares. All such
dividends shall be retained in the Escrow Deposit and shall be available in
respect of an Earn-Out EBITA Shortfall pursuant to Section 2.1(k)(iii) or for
the payment of indemnification claims under Section 7.1. In the event that
PentaStar or the Acquiror proposes to take any shares from the Escrow Deposit to
satisfy an indemnification claim, the Shareholders shall have the right, in
their sole discretion, to pay to the Escrow Agent an amount of cash equal to the
Fair Market Value of the shares proposed to be taken, determined as of the date
such payment is made, and receive from the Escrow Agent certificates
representing such shares. If the Shareholders exercise that right, PentaStar and
the Shareholders shall execute joint written instructions to the Escrow Agent to
deliver the cash so paid to PentaStar and to transfer the appropriate number of
shares of PentaStar Common Stock to the Shareholders. If the Shareholders do not
exercise that right, PentaStar may nonetheless require the Shareholders to
substitute cash
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41
for the shares (in an amount equal to the Fair Market Value of the shares
determined as of the date such payment is required by PentaStar or the Acquiror
to be made) to be taken from the Escrow Deposit if, in the good faith opinion of
PentaStar and the Shareholders, based on advice of the Denver, Colorado office
of BDO ▇▇▇▇▇▇▇ LLC (which shall be mutually retained by PentaStar and the
Shareholders), the taking of shares from the Escrow Deposit would cause the
Purchase Price, taken as a whole, not to comply with the continuity of interest
test for a tax-free reorganization under Section 368 of the Code. For that
purpose, the parties agree that, under current Legal Requirements, such
continuity of interest test would not require that the PentaStar Shares
constitute more than half of the total Purchase Price, after all adjustments and
taking into account any reacquisition by PentaStar or the Acquiror of any of the
PentaStar Shares.
7.2. Indemnification Provisions for Benefit of the Shareholders. If
PentaStar breaches (or if any Person other than a Shareholder alleges facts
that, if true, would mean PentaStar has breached) any of its representations or
warranties contained herein and the Shareholders' Agent gives notice of a claim
for indemnification against PentaStar within the Survival Period, or if
PentaStar or the Acquiror breaches (or if any Person other than a Shareholder
alleges facts that, if true, would mean PentaStar or the Acquiror has breached)
any of its respective covenants contained herein or any of its respective
representations, warranties or covenants contained in any Other PentaStar
Agreement and the Shareholders' Agent gives notice thereof to PentaStar, then
PentaStar or the Acquiror, as the case may be, agrees to indemnify and hold
harmless the Shareholders from and against any Adverse Consequences the
Shareholders may suffer which result from, arise out of, relate to, or are
caused by the breach or alleged breach by such Person, regardless of whether the
Adverse Consequences are suffered during or after the Survival Period. In
determining whether there has been a breach of any representation or warranty
contained in Section 3.2 and in determining the amount of Adverse Consequences
suffered by the Shareholders for purposes of this Section 7.2, such
representations and warranties shall not be qualified by "material,"
"materiality," "in all material respects," "best knowledge," "best of knowledge"
or "knowledge" or words of similar import, or by any phrase using any such terms
or words. If any dispute arises concerning whether any indemnification is owing
which cannot be resolved by negotiation among the parties within 30 days of
notice of claim for indemnification from the party claiming indemnification to
the party against whom such claim is asserted, the dispute shall be resolved by
arbitration pursuant to this Agreement. If a Shareholder is sued in an action
relating in whole or in part to a claim against which he or she is or may be
entitled to indemnification hereunder, he or she may, at its option, join
PentaStar or the Acquiror, as the case may be, in that action and have his right
to indemnification adjudicated by the court.
7.3. Matters Involving Third Parties.
(a) If any Person not a party to this Agreement (including, without
limitation, any Governmental Authority) notifies any party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give rise
to a claim for indemnification against any other party (the "Indemnifying
Party"), then the Indemnified Party shall notify each Indemnifying Party thereof
in writing within 15 days after receiving such notice. No delay on the part of
the Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party shall have the right, at its sole cost and
expense, to defend the Indemnified Party against the Third Party Claim with
counsel of its choice satisfactory to the Indemnified Party so long as (i) the
Indemnifying Party notifies the Indemnified Party in writing within 10 days
after the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party shall indemnify the Indemnified Party from and against the
entirety of any Adverse Consequences the Indemnified Party may
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suffer resulting from, arising out of, relating to or caused by the Third Party
Claim, (ii) the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party shall
have the financial resources to defend against the Third Party Claim and fulfill
its indemnification obligations hereunder, (iii) the Third Party Claim involves
only money damages and does not seek an injunction or other equitable relief,
(iv) settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the continuing
business interests of the Indemnified Party, and (v) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently. If the
Indemnifying Party does not assume control of the defense or settlement of any
Third Party Claim in the manner described above, it shall be bound by the
results obtained by the Indemnified Party with respect to the Third Party Claim.
(c) So long as the Indemnifying Party is conducting the defense of the
Third Party Claim in accordance with Section 7.3(b) above, (i) the Indemnified
Party may retain separate co-counsel at its sole cost and expense and
participate in the defense of the Third Party Claim, (ii) the Indemnified Party
shall not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (iii) the Indemnifying
Party shall not consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably).
(d) In the event any of the conditions in Section 7.3(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Party shall
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party shall remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to or caused by the Third Party Claim to the fullest extent
provided in this Section 7.
7.4. Right of Offset. PentaStar and the Acquiror shall have the right to
offset any Adverse Consequences either of them may suffer or any amounts due to
either of them hereunder or under any Other Seller Agreement against any amounts
payable or shares of PentaStar Common Stock issuable pursuant to this Agreement
or any Other Seller Agreement (other than under either of the Employment
Agreements or the Shareholder Premises Lease) to any Shareholder or any relative
or affiliate of any Shareholder at or after the Closing. For purposes of
effecting any offset against shares of PentaStar Common Stock, such shares shall
be valued at their Fair Market Value as of the date the set-off is effected by
PentaStar or the Acquiror.
7.5. Other Remedies. Absent intentional misrepresentation or fraud, the
foregoing indemnification provisions shall be the sole and exclusive remedy any
party may have with respect to any Adverse Consequences resulting from, arising
out of, relating to or caused by a breach of a representation or warranty in
this Agreement. With respect to representations and warranties contained in any
Other Seller Agreements or in any Other PentaStar Agreements or covenants
contained herein or therein, the foregoing indemnification provisions are in
addition to, and not in derogation of, any statutory, equitable or common law
remedy any party may have.
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8. Termination.
8.1. Termination of Agreement. The parties may terminate this Agreement as
provided below:
(a) PentaStar and the Shareholders' Agent may terminate this Agreement
by mutual written consent at any time prior to the Closing;
(b) PentaStar may terminate this Agreement by giving written notice to
the Shareholders' Agent at any time prior to the Closing (i) in the event any
Shareholder has breached any representation, warranty or covenant contained in
this Agreement in any material way, PentaStar has notified the Shareholders'
Agent of the breach, and the breach has not been cured within 10 days after the
notice of breach or (ii) if the Closing has not occurred on or before November
30, 2000 because of the failure of any condition precedent to PentaStar's
obligations to consummate the Closing (unless the failure results primarily from
PentaStar breaching any representation, warranty or covenant contained in this
Agreement in any material way); or
(c) the Shareholders' Agent may terminate this Agreement by giving
written notice to PentaStar at any time prior to the Closing (i) if PentaStar
has breached any representation, warranty or covenant contained in this
Agreement in any material way, the Shareholders' Agent has notified PentaStar of
the breach, and the breach has not been cured within 10 days after the notice of
breach or (ii) if the Closing has not occurred on or before November 30, 2000
because of the failure of any condition precedent to the Shareholders'
obligations to consummate the Closing (unless the failure results primarily from
any Shareholder breaching any representation, warranty or covenant contained in
this Agreement in any material way).
8.2. Effect of Termination. The termination of this Agreement by a party
pursuant to Section 8.1 shall in no way limit any obligation or liability of any
other party based on or arising from a breach or default by such other party
with respect to any of its representations, warranties, covenants or agreements
contained in this Agreement, and the terminating party shall be entitled to seek
all relief to which it is entitled under applicable law.
8.3. Confidentiality. If this Agreement is terminated, each party shall
treat and hold as confidential all Confidential Information concerning the other
parties which it acquired from such other parties in connection with this
Agreement and the transactions contemplated hereby.
9. Miscellaneous.
9.1. No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the parties and their respective
successors and permitted assigns.
9.2. Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements or representations by or among the parties,
written or oral, to the extent they relate in any way to the subject matter
hereof. This Agreement amends, restates and supersedes in its entirety the
Agreement and Plan of Merger dated November 14, 2000 among the parties as
necessary to reflect the agreement of the parties reached in connection with the
Closing.
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9.3. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. No Shareholder may assign this Agreement nor any of its, his
or her rights, interests or obligations hereunder without the prior written
approval of PentaStar. PentaStar may assign its rights and obligations hereunder
as permitted by applicable Legal Requirement, including, without limitation, to
any debt or equity financing source.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall be deemed to be one and the same instrument. The execution of a
counterpart of the signature page to this Agreement shall be deemed the
execution of a counterpart of this Agreement. This Agreement may be delivered by
facsimile and facsimile signatures shall be treated as original signatures for
all purposes.
9.5. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.6. Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if it is sent
by registered or certified mail, return receipt requested, postage prepaid, or
by courier, telecopy or facsimile, and addressed to the intended recipient as
set forth below:
If to any
Shareholder: Copy to:
Addressed to the ▇▇▇▇ & Sudan, L.L.P.
Shareholders' Agent at: Two Houston Center
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
If to PentaStar or the Acquiror: Copy to:
PentaStar Communications, Inc. ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ L.L.C.
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: Chief Executive Officer Attn: B. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇ Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Notices shall be deemed given three days after mailing if sent by certified
mail, when delivered if sent by courier, and upon receipt of confirmation by
person or machine if sent by telecopy or facsimile transmission. Any party may
change the address to which notices, requests, demands, claims and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
9.7. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Colorado without giving effect
to any choice or conflict of law provision or rule
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(whether of the State of Colorado or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the State of
Colorado.
9.8. Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same is in writing and signed by PentaStar
and the Shareholders' Agent. No waiver by any party of any default,
misrepresentation or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation or breach of warranty or covenant hereunder or affect
in any way any rights arising by virtue of any prior or subsequent such
occurrence, and no waiver shall be effective unless set forth in writing and
signed by the party against whom such waiver is asserted.
9.9. Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
9.10. Expenses. Except as otherwise provided in Section 8.2, (a) PentaStar
shall bear its own costs and expenses (including, without limitation, legal fees
and expenses) incurred either before or after the date of this Agreement in
connection with this Agreement or the transactions contemplated hereby and (b)
the Shareholders shall bear all costs and expenses (including, without
limitation, all legal, accounting and tax related fees and expenses, all fees,
commissions, expenses and other amounts payable to any broker, finder or agent)
incurred by the Company prior to the Closing or by any Shareholder either before
or after the date of this Agreement in connection with this Agreement or the
transactions contemplated hereby (collectively, "Seller Transaction Expenses");
provided, however, that prior to the Closing Date the Company may use any cash
(other than the Interim Cash Requirement or cash received in respect of accounts
or notes receivable or Residual Payment Rights described in Section
2.1(k)(i)(A)(3) to pay Seller Transaction Expenses so long as the Shareholders
are liable for any Tax consequences to the Company, the Acquiror or PentaStar
arising therefrom, and any such Liability shall be a Closing Date Liability.
9.11. Arbitration. Any disputes arising under or in connection with this
Agreement, including, without limitation, those involving claims for specific
performance or other equitable relief, shall be submitted to binding arbitration
in St. Louis, Missouri before the Judicial Arbiter Group, but under the
Commercial Arbitration Rules of the American Arbitration Association under the
authority of federal and state arbitration statutes, and shall not be the
subject of litigation in any forum. If the Judicial Arbiter Group is unavailable
to conduct the arbitration, then it shall be before another arbitral body in
Denver, Colorado selected by PentaStar and the Shareholders' Agent or, if they
cannot agree on another arbitral body, the American Arbitration Association.
EACH PARTY, BY SIGNING THIS AGREEMENT, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY
WAIVES ANY RIGHTS SUCH PARTY MAY OTHERWISE HAVE TO SEEK REMEDIES IN COURT OR
OTHER FORUMS, INCLUDING THE RIGHT TO JURY TRIAL. The arbitrator shall have full
authority to order specific performance and other equitable relief and award
damages and other relief available under this Agreement or applicable law, but
shall have no authority to add to, detract from, change or amend the terms of
this Agreement or existing law. All arbitration proceedings, including
settlements and awards, shall be confidential, except as may otherwise be
required by applicable Legal Requirement. The decision of the arbitrators shall
be final and binding, and judgment
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on the award by the arbitrators may be entered in any court of competent
jurisdiction. THIS SUBMISSION AND AGREEMENT TO ARBITRATE SHALL BE SPECIFICALLY
ENFORCEABLE. The prevailing party or parties in any such arbitration or in any
action to enforce this Agreement shall be entitled to recover, in addition to
any other relief awarded by the arbitrator, all reasonable costs and expenses,
including fees and expenses of the arbitrators and attorneys, incurred in
connection therewith. If each party prevails on specific issues in the
arbitration or action, the arbitrator or court may allocate the costs incurred
by all parties on a basis it deems appropriate. If any party files a judicial or
administrative action asserting claims subject to arbitration, as prescribed
under this Section 9.11, and another party successfully stays such action and/or
compels arbitration of said claims, the party filing such action shall pay the
other party's costs and expenses incurred in seeking such stay and/or compelling
arbitration, including reasonable attorneys' fees.
9.12. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. The word "including" shall mean including
without limitation. The parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any party
breaches any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the party has not breached shall not detract from or mitigate
the fact that the party is in breach of the first representation, warranty or
covenant.
9.13. Incorporation of Exhibits. The Exhibits identified in this Agreement
are incorporated herein by reference and made a part hereof.
9.14. Shareholders' Agent. Each Shareholder hereby authorizes and appoints
the Shareholders' Agent as its, his or her exclusive agent and attorney-in-fact
to act on behalf of each of them with respect to all matters which are the
subject of this Agreement, including, without limitation, (a) receiving or
giving all notices, instructions, other communications, consents or agreements
that may be necessary, required or given hereunder and (b) asserting, settling,
compromising, or defending, or determining not to assert, settle, compromise or
defend, (i) any claims which any Shareholder may assert, or have the right to
assert, against PentaStar or the Acquiror, or (ii) any claims which PentaStar
may assert, or have the right to assert, against any Shareholder. The
Shareholders' Agent hereby accepts such authorization and appointment. Upon the
receipt of written evidence satisfactory to PentaStar to the effect that the
Shareholders' Agent has been substituted as agent of the Shareholders by reason
of his death, disability or resignation, PentaStar shall be entitled to rely on
such substituted agent to the same extent as they were theretofore entitled to
rely upon the Shareholders' Agent with respect to the matters covered by this
Section 9.14. No Shareholder shall act with respect to any of the matters which
are the subject of this Agreement except through the Shareholders' Agent. Each
Shareholder acknowledges and agrees that PentaStar or the Acquiror may deal
exclusively with the Shareholders' Agent in respect of such matters, that the
enforceability of this Section 9.14 is material to PentaStar, and that PentaStar
has relied upon the enforceability of this Section 9.14 in entering into this
Agreement.
[REMAINDER OF THE PAGE LEFT INTENTIONALLY BLANK]
'
xlii
47
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first set forth above.
PENTASTAR:
PENTASTAR COMMUNICATIONS, INC.
November 14, 2001 By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
ACQUIROR:
PENTASTAR ACQUISITION CORP. VII
February 19, 2001 By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
COMPANY:
LYNX COMMUNICATIONS, INC.
February 19, 2001 By: s/ P. ▇▇▇▇ ▇▇▇▇▇▇▇
--------------------------------------------
Name: P. ▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
SHAREHOLDERS:
February 19, 2001 /s/ P. ▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------------------
P. ▇▇▇▇ ▇▇▇▇▇▇▇
February 19, 2001 /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
February 19, 2001 /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
[SIGNATURE PAGE TO AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER]
xliii
48
Exhibit 1.1(a)
-------
DEFINED TERMS
Acquiror has the meaning given it in the preamble to this Agreement.
Acquired Assets means all right, title and interest of the Company in and
to all of the tangible and intangible assets of the Company, including customer
information and data, cash on hand, the Shareholder Property and the Capital
Lease Property, but excluding the Excluded Assets.
Adverse Consequences means all actions, suits, proceedings, investigations,
complaints, claims, demands, Orders, Liabilities, liens, losses, damages,
penalties, fines, settlements, costs, remediation costs, expenses and fees
(including court costs and reasonable fees and expenses of counsel and other
experts), plus interest at a rate equal to two percentage points above the prime
rate quoted by PentaStar's principal lender from time to time accrued from the
date of such Adverse Consequence. All Adverse Consequences shall be computed net
of (a) any applicable insurance proceeds actually received by the indemnified
party, if any, after taking into account all costs incurred by the indemnified
party in obtaining such proceeds and any increase in the indemnified party's
insurance premiums as a result of such claim and (b) any Tax benefits actually
realized by indemnified party as a result of a deduction, if any, for such
claim, to the extent the indemnified party does not realize any Tax obligation
as a result of the indemnification.
Affiliated Group means any affiliated group within the meaning of Code
Section 1504 or any similar group defined under a similar provision of state,
local or foreign law.
Atlanta-based Expansion Offices has the meaning given it in Section
2.1(n)(vi).
Atlanta Region means the current operations of the Company as of the
Closing Date; provided, however, that nothing in this definition or elsewhere in
this Agreement shall preclude PentaStar from simultaneously selling into the
areas of the Atlanta Region through other subsidiaries or its own activities so
long as PentaStar does not call on, solicit, market to or sell to any Person
which, as of the date on which PentaStar commences such other sales activities
in the Atlanta Region, is an existing or prospective customer of the Acquiror.
For purposes of this definition, a "prospective customer" shall mean a Person
whom the Acquiror (a) has contacted via telephone, mail or other delivery,
Internet or indirect marketing through referral sources or sub-agents or (b) has
made a proposal to on or prior to the date on which PentaStar commences such
other sales activities in the Atlanta Region for a sale within the Acquiror's
business. As it relates to the Atlanta Region geographically, during the
Earn-Out Period the current operations of the Company shall be PentaStar's
primary sales and operational base for the Atlanta Region geographically. Local
Access sales generated in the metropolitan Atlanta, Georgia area from personnel
associated with Non-BellSouth Offices shall be procured through the Acquiror's
operations, and commissions from BellSouth relating thereto shall be allocated
by PentaStar management, in conjunction with such mutual sales efforts
consistent with internal PentaStar policy, to the Acquiror and the Non-▇▇▇▇
South Offices. Sales generated by the Acquiror for Local Access services in
other PentaStar regions shall be procured through the respective local PentaStar
Regional Office for those respective regions, and commissions relating thereto
shall be allocated by PentaStar management, in conjunction with such mutual
sales efforts consistent with internal PentaStar policy, to the respective
PentaStar Regional Office and the Acquiror. During the Earn-Out Period,
Exhibit 1.1(a)-i
49
PentaStar shall not acquire additional companies headquartered in Atlanta,
Georgia, but shall have the right to acquire companies whose principal office is
not headquartered in Atlanta, Georgia but which may have historical sales
efforts or personnel in Atlanta, Georgia, and to continue to operate the
additional acquired companies as such during their respective earn-out periods.
After the Earn-Out Period has been completed and after the earn-out periods for
any additional acquired companies have been completed, the Shareholders and
PentaStar shall mutually agree on any combination of operations in the Atlanta
Region geographically which occurs, with the Acquiror's operations remaining the
primary sales and operational base for PentaStar in the Atlanta Region
geographically so long as ▇▇▇▇ ▇▇▇▇▇▇▇ remains the Atlanta Region manager under
his Employment Agreement.
Benefit Arrangement has the meaning set forth in Section 3.1(m).
Business Day means any day on which commercial banks are open for business
in Denver, Colorado.
Capital Lease Property has the meaning given it in Section 4.9.
Cash Portion of the Purchase Price has the meaning set forth in Section
2.1(k)(i).
Closing Accounts Receivable means all accounts (including late fees and
interest charges thereon) and notes receivable of the Company which are in
existence as of the Closing Date.
Closing and Closing Date have the meanings given in Section 2.2.
Closing Date Balance Sheet has the meaning given it in Section 2.1(l)(i).
Closing Date Liabilities means all Liabilities of the Company (including
those designated as Closing Date Liabilities under Sections 5.7(a) or 9.10),
other than Retained Liabilities.
Closing Shares has the meaning given in Section 2.1(k)(i).
Code means the Internal Revenue Code of 1986, as amended.
Company has the meaning given it in the preamble to this Agreement , except
that for purposes of Section 3.1, the term the "Company" shall mean the Company
and all of its Subsidiaries.
Company Shares has the meaning given it in Section 3.1(b)(i).
Company Welfare Plan has the meaning given it in Section 3.1(m)(i).
Confidential Information means any information concerning the subject
Person or the subject Person's business, products, financial condition,
prospects and affairs that is not already generally available to the public.
Earn-Out Amount means the remainder of four times the Earn-Out EBITA, minus
(a) the Cash Portion of the Purchase Price, minus (b) the $1,500,000 amount
described in Section 2.1(k)(i)(B), minus (c) the amount of the Retained
Liabilities described in clause (b) of the definition of Retained Liabilities,
and
Exhibit 1.1(a) - ii
50
minus (d) amounts paid by the Acquiror in respect of Closing Date Liabilities
(other than those Closing Date Liabilities in respect of which there is a
reduction of the Purchase Price pursuant to Section 2.1(k)(i)(A)(4)); provided,
however, that in no event shall the Earn-Out Amount be such as would cause
Earn-Out Amount plus the amounts referred to in clauses (a) through (d) of this
definition to exceed $6,000,000.
Earn-Out EBITA means the EBITA of the Acquiror from the Atlanta Region for
the Earn-Out Period, including for purposes of such determination the EBITA of
the Company from October 1, 2000 until the Closing Date, including, without
limitation, all earnings of the Acquiror from the Atlanta Region related to the
telecommunications agent business, including, without limitation, (a) any bonus
payment actually received from BellSouth during the Earn-Out Period, (b)
payments earned during the Earn-Out Period for consulting revenues, referral
fees and commissions allocated by PentaStar management earned in conjunction
with other PentaStar subsidiaries or divisions on mutual sales efforts and (c)
payments actually received during the Earn-Out Period for Residual Payment
Rights; provided, however, that in any event Earn-Out EBITA (i) shall not
include any allocation of PentaStar corporate headquarters expense but shall
include allocation of a pro rata portion of direct expenses of PentaStar to the
extent PentaStar provides services to the Acquiror, (ii) shall be reduced by the
Principal Customer/Principal Referral Source Reduction Amount, (iii) shall not
include any EBITA associated with any Atlanta-based Expansion Office and (iv)
shall not include any expense for fees paid by the Company to (A) ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ prior to the Closing in respect of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇'▇ audit of the
Latest Balance Sheet and the related review of the statements of income,
shareholders' equity and cash flows for the 9-month period ended September 30,
2000, (B) ▇▇▇▇ & Sudan, L.L.P. in respect of ▇▇▇▇ & Sudan's work in connection
with this Agreement or (C) ▇▇▇▇▇▇▇ Stradzeri in respect of his work in
connection with this Agreement.
Earn-Out EBITA Shortfall has the meaning given it in Section 2.1(k)(iii).
Earn-Out Financial Statements has the meaning given it in Section
2.1(n)(ii).
Earn-Out Period means the period commencing October 1, 2000 and ending
September 30, 2001.
Earn-Out Period EBITA Less Owner Distributions means the Earn-Out Period
EBITA less the aggregate of all cash paid, disbursed, dividended or otherwise
distributed by the Company to the Shareholders, or any of them, between October
1, 2000 and to the Closing (other than as permitted by Section 3.1(e)(ii)(I)).
EBITA means earnings before interest, taxes and amortization, determined in
accordance with GAAP and on a basis consistent with the accounting practices of
PentaStar, including PentaStar's GAAP methods of revenue recognition for
residual commission payments and GAAP consistent with booking prior paid
salesperson commissions as prepaid commissions less an appropriate reserve for
contract cancellations and salesperson terminations.
EBITA Escrow has the meaning set forth in Section 2.1(k)(iii).
EBITA Escrow Release Date means the earlier of (a) the date on which the
Earn-Out Amount is paid pursuant to Section 2.1(n) or (b) the date upon which it
is determined that no Earn-Out Amount is payable.
Effective Date has the meaning given it in Section 2.1.
Exhibit 1.1(a) - iii
51
Employee Benefit Plan means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan, as defined in ERISA Section 3(37)) or (d) Employee Welfare
Benefit Plan.
Employee Pension Benefit Plan has the meaning set forth in ERISA Section
3(2).
Employee Welfare Benefit Plan has the meaning set forth in ERISA Section
3(1).
Employment Agreements means (a) the Employment and Noncompetition Agreement
between the Acquiror and P. ▇▇▇▇ ▇▇▇▇▇▇▇ in the form of Exhibit 1.1(b)(i) and
(b) the Employment and Noncompetition Agreement between the Acquiror and ▇▇▇▇▇▇
▇▇▇▇ in the form of Exhibit 1.1(b)(ii).
Encumbrance means any mortgage, pledge, conditional sale agreement, charge,
claim, interest of another Person, lien, security interest, title defect or
other encumbrance.
Environmental Obligations means all present and future Legal Requirements
and Permits concerning land use, public health, safety, welfare or the
environment, including, without limitation, the Resource Conservation and
Recovery Act (42 U.S.C. ss.6901 et seq.), as amended, and the Comprehensive
Environmental Response, Compensation, and Liability Act (42 U.S.C.ss.9601 et
seq.), as amended.
ERISA means the Employee Retirement Income Security Act of 1974, as
amended, and any regulations, rules or orders promulgated thereunder.
ERISA Affiliate means any entity which is controlled by, or is under common
control with, the Company, as determined under ERISA Section 4001(a)(14).
Escrow Agent means ▇▇▇▇▇ Fargo Bank West, National Association.
Escrow Agreement means the Escrow Agreement among PentaStar, the Acquiror,
the Shareholders' Agent and the Escrow Agent in form of Exhibit 1.1(c).
Escrow Deposit means the Closing Shares deposited with the Escrow Agent,
all cash, securities or other property received by the Shareholders or the
Escrow Agent in respect of or in exchange for such Closing Shares and all
earnings thereon.
Escrow Period means the period commencing on the Closing Date and ending on
the EBITA Escrow Release Date.
Estimated Closing Date Balance Sheet has the meaning given it in Section
2.1(j)(i).
Estimated Interim Period Cash Flow Statement has the meaning given it in
Section 2.1(j)(ii).
Exchange Act means the Securities Exchange Act of 1934, as amended.
Exhibit 1.1(a) - iv
52
Excluded Assets means cash on hand of the Company in excess of the sum of
(i) the amount of cash determined pursuant to Section 2.1(k)(i)(A)(2) plus (ii)
the Interim Cash Requirement.
Expansion Earn-Out Amount means, with respect to an Atlanta-based Expansion
Office, (a) if the Expansion EBITA with respect to that Atlanta-based Expansion
Office is positive, an amount equal to the Expansion Revenues of such office or
(b) if the Expansion EBITA with respect to that Atlanta-based Expansion Office
is negative, an amount equal to (i) the Expansion Revenues of such office minus
(ii) four times the negative Expansion EBITA of such office.
Expansion Earn-Out Financial Statements has the meaning given it in Section
2.1(n)(ii).
Expansion Earn-Out Period means, with respect to an Atlanta-based Expansion
Office, the 12-month period commencing on the opening date of such Atlanta-based
Expansion Office mutually agreed upon by PentaStar and the Shareholders' Agent
and ending 12 months thereafter.
Expansion EBITA means, with respect to an Atlanta-based Expansion Office,
the EBITA of the Acquiror from such office the Expansion Earn-Out Period,
including for purposes of such determination an allocation (on a percentage
basis determined by dividing (a) the Expansion Revenues of such office by (b)
the sum of (i) the Expansion Revenues of such office plus (ii) the total
revenues of the Acquiror during the Expansion Earn-Out Period, determined in
accordance with and on a basis consistent with PentaStar's GAAP method of
revenue recognition) of (x) the operating expenses of the Acquiror associated
with such office's procurement of telecommunications services and (y) the
expense of the Acquiror associated with the Atlanta Region Regional Manager.
Expansion Revenues means the revenues of the Acquiror from any
Atlanta-based Expansion Office for the Expansion Earn-Out Period relating to
such office, determined in accordance with and on a basis consistent with
PentaStar's GAAP method of revenue recognition.
Fair Market Value of the PentaStar Common Stock means (a) as of the Closing
Date, the average of the closing prices of the PentaStar Common Stock for the
four trading days prior to the Closing Date, the Closing Date and the five
trading days after the Closing Date, as quoted by Nasdaq, (b) for the Second
Closing, the average of the closing prices of PentaStar Common Stock for the
five trading days ending two trading days prior to June 30, 2001, as quoted by
Nasdaq and (c) as of any other date, the average of the closing prices of the
PentaStar Common Stock for the five trading days ending two trading days prior
to such date. If closing prices are not quoted for the PentaStar Common Stock,
the closing price for each such day shall be deemed to be the average of the
last bid and last asked prices for the PentaStar Common Stock for that day, as
quoted by Nasdaq. If the PentaStar Common Stock is not quoted on Nasdaq, the
closing price for each such day shall be deemed to be the average of the high
and low sales prices for the PentaStar Common Stock on that day (or if no sales
prices are reported, the average of the high and low asked prices) as reported
by the principal regional stock exchange, or if not so reported, as reported by
Nasdaq or a quotation system of general circulation to brokers and dealers. If
the Fair Market Value of the PentaStar Common Stock cannot be determined as
provided above, Fair Market Value shall be determined by the board of directors
of PentaStar by any reasonable method chosen by it.
GAAP means generally accepted accounting principles as in effect from time
to time in the United States.
Exhibit 1.1(a) - v
53
Governmental Authority means the United States of America, any state,
commonwealth, territory or possession of the United States of America, any
political subdivision thereof (including counties, municipalities, home-rule
cities and the like), and any agency, authority or instrumentality of any of the
foregoing, including, without limitation, any court, tribunal, department,
bureau, commission or board.
Hazardous Materials means any material, chemical, compound, mixture,
hazardous substance, hazardous waste, pollutant or contaminant defined, listed,
classified or regulated under any Environmental Obligation.
Intellectual Property means all trade, corporate, business and product
names, trademarks, trademark rights, service marks, copyrights, patents, patent
rights, trade secrets, inventions, processes, formulae, discoveries,
improvements, business, customer and technical information, computer software,
all registrations, licenses and applications pertaining thereto, and all related
documentation and goodwill.
Interim Cash Requirement means the amount of the positive difference, if
any, between (a) the aggregate amount of cash disbursements by the Acquiror
during the Interim Period for Liabilities, including payroll, commissions, rent
and accounts payable, over (b) the aggregate amount of cash collections by the
Acquiror during the Interim Period.
Interim Period means the period between the Closing Date and the date of
receipt of the first regularly scheduled BellSouth commission payment following
the Closing Date.
Interim Period Cash Flow Statement has the meaning given it in Section
2.1(l)(ii).
Key Employee means (a) each employee of the Company other than clerical
employees and (b) if any salesperson is an independent contractor rather than an
employee, each such salesperson. Key Employees include, without limitation,
executives and salespersons.
Latest Balance Sheet has the meaning given it in Section 3.1(d).
Legal Requirement means any constitution, statute, ordinance, code, or
other law (including common law), rule, regulation, Order, notice, standard,
procedure or other requirement enacted, adopted, applied or issued by any
Governmental Authority, including, without limitation, judicial decisions
applying or interpreting any such Legal Requirement.
Liability means any liability or obligation (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due).
Local Access means the services provided by the applicable regional ▇▇▇▇
operating company as the incumbent communications provider in any of the regions
where PentaStar sells services, including BellSouth, Inc., SBC, Inc. (including
the historical areas of Southerwestern ▇▇▇▇, Pac-▇▇▇▇ and Ameritech), Verizon,
Inc. and QWEST Communications, Inc.
Merger has the meaning given it in Section 2.1.
Exhibit 1.1(a) - vi
54
Multiemployer Plan is a plan maintained under a collective bargaining
agreement, to which more than one employer is required to contribute, and which
has the meaning set forth in ERISA Section 3(37).
Net Cash Flow means the positive difference, if any, between (a) the net
cash received during the Earn-Out Period in the normal course of business for
any bonus payment actually received by the Acquiror from BellSouth during the
Earn-Out Period and payments actually received by the Acquiror during the
Earn-Out Period for consulting revenues, referral fees, commissions allocated by
PentaStar management earned in conjunction with other PentaStar subsidiaries or
divisions on mutual sales efforts and Residual Payment Rights, minus (b) the net
cash disbursed by the Acquiror during the Earn-Out Period (excluding any
disbursed in respect of expenditures for fixed assets), minus (c) the accounts
payable of the Company which are past due at September 30, 2000 based upon their
normal stated terms, plus (d) the amount of any prepayments by the Company of
accounts payable of the Company that were not due by September 30, 2000 based
upon their normal stated terms, minus (e) the aggregate of all cash paid,
disbursed, dividended or otherwise distributed by the Company to the
Shareholders, or any of them, between October 1, 2000 and the Closing (other
than as permitted by Section 3.1(e)(ii)(I)).
Net Cash Flow Difference has the meaning given it in Section 2.1(n)(iii).
Non-BellSouth Offices means PentaStar offices and personnel in
non-BellSouth territories which do not have existing BellSouth agency contracts
for ▇▇▇▇ South services.
Noncompetition Agreement means the Noncompetition Agreement among
PentaStar, the Acquiror and the Shareholders in the form of Exhibit 1.1(d).
Operational Continuity means the Company has (a) maintained its assets,
properties and business in the same manner as prior to October 1, 2000 and in a
manner consistent with the Company's budget as previously submitted to
PentaStar, (b) discussed and consulted with PentaStar on any material changes in
strategy, policies or business operations and (c) obtained PentaStar's prior
written approval before making or implementing any material operating or policy
decisions regarding the Company, including, without limitation, hiring, entering
into contracts and making capital or operating expenditures.
Option Agreement means the Option Agreement among PentaStar, NetSource
Communications, Inc. and P. ▇▇▇▇ ▇▇▇▇▇▇▇ in the form of Exhibit 1.1(e)
Orders means all judgments, injunctions, orders, rulings, decrees,
directives, notices of violation or other requirements of any Governmental
Authority or arbitrator having jurisdiction in the matter, including a
bankruptcy court or trustee.
Other PentaStar Agreements means the Escrow Agreement, the Employment
Agreements, the Noncompetition Agreement, the Option Agreement, the Principal
Shareholder's Escrow Agreement, the Shareholder Premises Lease and the other
documents and instruments to be executed and delivered by PentaStar or the
Acquiror pursuant to this Agreement.
Other Seller Agreements means the Escrow Agreement, Employment Agreements,
the Noncompetition Agreement, the Option Agreement, the Principal Shareholder's
Escrow Agreement, the Shareholder Premises Lease and other documents and
instruments to be executed and delivered by any Shareholder or any relative or
affiliate of the Company or of any Shareholder pursuant to this Agreement.
Exhibit 1.1(a) - vii
55
PentaStar Common Stock means the common stock, par value $.0001 per share,
of PentaStar.
PentaStar Liquidity Event has the meaning given it in Section 5.10.
PentaStar Regional Offices means PentaStar offices and personnel in regions
who have contracts and sales and procurement operations for Local Access
services provided by the applicable regional ▇▇▇▇ operating company, including
BellSouth, Inc., SBC, Inc. (including the historical areas of Southwestern ▇▇▇▇,
Pac-▇▇▇▇ and Ameritech), Verizon, Inc. and QWEST Communications, Inc.
PentaStar Shares has the meaning set forth in Section 3.1(u).
Permits means all permits, licenses, consents, franchises, authorizations,
approvals, privileges, waivers, exemptions, variances, exclusionary or
inclusionary Orders and other concessions, whether governmental or private,
including, without limitation, those relating to environmental, public health,
welfare or safety matters.
Person means an individual, partnership, corporation, association, joint
stock company, trust, joint venture, limited liability company, unincorporated
organization or Governmental Authority.
Premises means the real property, buildings and improvements thereon
constituting the business premises of the Company located at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇.
Principal Customer (a) has the meaning given it in Section 3.1(o) and (b)
also means each customer that individually or with its affiliates accounts, as a
customer, for 5% or more of the aggregate revenues of the Company and the
Acquiror during the Earn-Out Period.
Principal Customer/Principal Referral Source EBITA Impact Amount means,
with respect to the Earn-Out Period and associated with any Particular Principal
Customer or Principal Referral Source, the aggregate GAAP revenues of the
Company and the Acquiror, less the aggregate commission expense of the Company
and the Acquiror for sales people or fees of the Company and the Acquiror to
referral sources.
Principal Customer/Principal Referral Source Reduction Amount means the
Principal Customer/Referral Source EBITA Impact Amount associated with any
Principal Customer or Principal Referral Source which ceases to be, which gives
notice to the Acquiror or PentaStar that it will cease to be, or which PentaStar
reasonably believes in good faith will cease to be, a Principal Customer or
Principal Referral Source.
Principal Provider has the meaning given it in Section 3.1(o).
Principal Referral Source (a) has the meaning given it in Section 3.1(o)
and (b) also means each referral source that individually or with its affiliates
accounts, as a referral source, for 5% or more of the aggregate revenues of the
Company and the Acquiror during the Earn-Out Period.
Principal Shareholder's Escrow Agreement means the Principal Shareholder's
Escrow and Contingent Stock Agreement among PentaStar, P. ▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in the form of Exhibit 1.1(f).
Exhibit 1.1(a) - viii
56
Purchase Price has the meaning given it in Section 2.1(k).
Residual Payment Rights means all rights to future payments of commissions
from any service provider.
Retained Liabilities means (a) the obligations of the Company arising after
the Closing Date under those contracts which are identified by PentaStar on
Exhibit 1.1(g) with respect to the period after the Closing Date; provided,
however, that such obligations shall not include any Liability of the type
contemplated in clause (ii) of the third sentence of Section 7.1(a) which
results from, arises out of or relates to the period on or before the Closing
Date and (b) current liabilities in existence as of the Closing Date which (i)
have been incurred by the Company in the ordinary course of business consistent
with past practice (excluding, however, in all cases any Liability for interest
bearing debt; bank debt; loans for the acquisition of equipment or other fixed
assets; loans or debt with respect to the acquisition of any business or entity
(regardless of how structured); capital, operating or other leases; Liabilities
to any shareholder, director, officer or affiliate of the Company or any
relative or affiliate of any such Person; past due payables or Liabilities;
compensation, bonuses or commissions associated with revenues that have been
received by the Company prior to the Closing Date; accrued bonuses; accrued
commissions; accrued profit sharing; accrued rent; accrued Taxes; Taxes which
are made the responsibility of the Shareholders pursuant to this Agreement;
costs and expenses in connection with this Agreement or the transactions
contemplated hereby; and all expenses or Liabilities which are required by GAAP
to be accrued as of the Closing Date but which have not been so accrued
(including expenses and Liabilities attributable to bonuses, commissions, profit
sharing, rent and Taxes)), and (ii) are set forth on the Closing Date Balance
Sheet as Retained Liabilities rather than as Closing Date Liabilities. Retained
Liabilities shall not include any other Liability.
Right means any right, property interest, concession, patent, trademark,
trade name, copyright, know-how or other proprietary right of another Person.
SEC means the Securities and Exchange Commission.
SEC Filings means all reports, registration statements and other filings
filed by PentaStar with the SEC on or prior to the Closing Date.
Second Closing has the meaning set forth in Section 2.1(n)(iii).
Securities Act means the Securities Act of 1933, as amended.
Shareholder Premises Lease means the Lease Agreement between the Acquiror
and P. ▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ in the form of Exhibit 1.1(h).
Shareholders has the meaning given it in the preamble to this Agreement.
Shareholders' Agent means P. ▇▇▇▇ ▇▇▇▇▇▇▇ (or the substituted agent
described in Section 9.14) acting as agent for the Shareholders pursuant to
Section 9.14.
Shareholder Property has the meaning given it in Section 4.8.
Exhibit 1.1(a) - ix
57
Sub-Agent means a Person, not an employee of the Company, who markets or
sells goods or services of the Company to third parties. The term Sub-Agent
includes the Persons listed as such on Exhibit 3.1(o)(i).
Subsidiary means, with respect to a Person, any Person controlled (meaning
possession of the direct or indirect power to direct or cause the direction of
the management and policies, whether through the ownership of voting securities,
by contract or otherwise) by such first Person directly or through one or more
intermediaries.
Survival Period means, with respect to a representation or warranty, the
applicable period after the Closing Date during which such representation or
warranty survives pursuant to Section 3.3.
Surviving Corporation has the meaning given it in Section 2.1(a).
Tax means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, documentary, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
Tax Return means any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Transaction has the meaning given it in the preamble to this Agreement.
Uncontested Earn-Out Amount means that portion of the Earn-Out Amount (or
the applicable Expansion Earn-Out Amount) which is not initially objected to by
PentaStar or the Shareholders pursuant to Section 2.1(n)(ii).
Exhibit 1.1(a) - x